Firm Billings Soften, Expect Flat Revenue
The latest American Institute of Architects and Deltek Architectural Billings Index reportedly found that billings are seeing a decline for the third consecutive month.
The ABI is an economic indicator derived from a monthly survey of American Institute of Architects member-owned firms, which measures demand for design services throughout the United States. It provides insight into future construction activity across various sectors including commercial/industrial/institutional buildings and multifamily residential projects.
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.
According to the institute, the score of 44.3 for October dipped slightly below the score of 44.8 in September. Billings were reportedly soft across the entire country in October, with firms located in the West and Northeast continuing to report the softest conditions overall for the second month in a row.
“This report indicates not only a decrease in billings at firms, but also a reduction in the number of clients exploring and committing to new projects, which could potentially impact future billings. The soft conditions were evident across the entire country as well as across all major nonresidential building sectors,” said Kermit Baker, PhD, AIA Chief Economist.
Additional findings from the report include:
The regional and sector categories are calculated as three-month moving averages and may not always average out to the national score.
The AIA also notes that, as part of the survey, the architecture services industry continued to lose jobs in September, and that firm leaders largely expect net revenue to be flat this year.
Overall, responding firm leaders reportedly indicated that they expect net revenue to be essentially flat at their firm, with only slightly more firms projecting an increase in their revenue from 2022 (44%) than projecting a decrease (37%).
Larger firms are somewhat more likely than small firms to expect an increase in net revenue this year (48% of large firms with annual revenue of $5 million or more, versus 43% of small firms with annual revenue of $250,000 or less), for an average projected increase of 1.6%, versus a projected decline of 3% for small firms.
Firms with an institutional specialization are also much more likely to project revenue growth this year, with 50% projecting an increase for average growth of 3.4%.
The AIA adds that this stands in contrast to firms with a multifamily residential specialization, where net revenue is expected to decline by 3.3% this year, and firms with a commercial/industrial specialization, where net revenue is expected to be unchanged from 2022.
Compared the beginning of the year, slightly more than one third of responding firm leaders (35%) indicated that their current estimates are in line with their expectations, while 41% indicated that their current estimates are less than expectations (including 16% who reported that their current estimates are significantly less than their expectations), and 24% indicated that their current estimates are in excess of expectations.
Additionally, when asked about changes in major firm expenses over the coming year, the majority of responding firm leaders indicated that they expect expenses to increase.
Previous ABI Report
At the end of October, the ABI found that business conditions declined in September, reaching the lowest score since the pandemic in December 2020. The AIA and Deltek reported that the September ABI scored 44.8, noting that “it’s clear that all regions of the country are feeling this impact.”
Firms in the West were reportedly continuing to face particularly challenging conditions. Additionally, only one sector, firms with an institutional specialization, remained flat while all other sectors reported declining billings.
Firms with a multifamily residential specialization saw more decline, a continuation of month-over-month declines since August 2022.
Other findings from the report include: