Design Activity Continues Downward Trend
The American Institute of Architects recently released its Architecture Billings Index report for the month of February, indicating an extension of a recent downturn in design activity.
The ABI is a diffusion index derived from the AIA’s monthly Work-on-the-Boards survey, conducted by the AIA Economics and Market Research Group. The ABI serves as a leading economic indicator that leads nonresidential construction activity by approximately 9-12 months.
According to the AIA, billings remained soft for the fifth consecutive month in February. Overall billings have declined every month since October 2022, but it is noted that the pace of decline remains relatively modest and has not accelerated dramatically.
An index score of 50 represents no change in firm billings from the previous month, a score above 50 indicates an increase in firm billings from the previous month and a score below 50 indicates a decline in firm billings from the previous month.
Down from January’s score of 49.3, the ABI score for February fell 1.3 points to 48.0 for the month. The AIA went on to note in its report that inquiries into new projects continued to improve, as did the value of new design contracts.
The project inquires index scored positively with 55.0, while the design contracts index reported a score of 51.3. Both indicators suggest that design work is expected to improve in the coming months.
“The combination of an unsettled economy and high interest rates is causing investors and property owners to take a closer look at their plans for construction projects,” said AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “While this is producing delays for some projects under design, architecture firms are reporting that prospects for future project work remain generally positive.”
Additional highlights from the November ABI report included:
The regional and sector categories are calculated as a three-month moving average, whereas the national index, design contracts and inquiries are monthly numbers.
Data representing the month of February can be viewed here.
Previous ABI Results
October’s ABI marked the first decline in billings since January 2021, down several points from September’s score of 51.7. The ABI score continued to fall, this time an additional 4 points to 47.7 in October. The AIA went on to note in its report that inquiries into new projects continued to grow for the month, with a score of 52.3, while the value of new design contracts declined, with a score of 48.6.
Additional highlights from the October ABI report included:
Since the regional and sector categories are calculated as three-month moving averages, while the national billings index, design contracts and inquiries are reported as monthly numbers, the regional and sector scores may not always average out to the national score.
The following month, it was reported that demand for designs was continuing to slow, falling 1.1 points to 46.6 for the month. The AIA went on to note in its report that while the pace of inquiries into new projects slowed, it remained positive with a score of 52.0. New design contracts, however, remained in negative territory with a score of 46.9.
Construction Starts Report
Earlier this month, according to data released by Dodge Construction Network, total construction starts rose 6% in February to a seasonally adjusted annual rate of $912.8 billion.
According to the release, in February, residential and nonresidential building starts rose 11% and 9%, respectively, and nonbuilding starts declined by 5%. Year-over-year, residential starts were down 31%, nonresidential starts were off 14%, while nonbuilding starts gained 6%.
For the 12 months ending February 2023, Dodge reports that total construction starts were 9% higher than the 12 months ending February 2022. Nonresidential and nonbuilding starts were also 27% and 19% higher, respectively, while residential starts lost 9%.
Looking at the largest increase first, residential starts rose to a seasonally adjusted annual rate of $320 billion. Single-family and multifamily starts rose 4% and 22% respectively.
Nonresidential building starts reportedly grew to a seasonally adjusted annual rate of $368 billion, driven by a 218% gain in manufacturing starts due to the start of a large EV battery plant in Ohio.
However, commercial starts decreased 2% in February as office and parking structure starts fell, offsetting increases in retail, hotels and warehouse activity. Institutional starts also fell during the month, following a decline in education and healthcare projects.
On the flip side, nonbuilding construction starts fell in February to a seasonally adjusted annual rate of $225 billion. Dodge attributes this to a 30% decline in environmental public works starts and a 5% loss in highway and bridge starts, while utility/gas plant starts rose 68% and miscellaneous public works starts were up 6%.
Regionally, total construction starts in February rose in the Northeast, Midwest and South Central regions, but fell in the South Atlantic and West.