By Kermit Baker, Hon. AIA
AIA Chief Economist
Billings at U.S. architecture firms increased again in February, marking the fourth straight month that revenue has risen. With a rating of 51.0, though, the February score was only a slight increase over January levels, so there is yet to be a strong rise in activity in the design professions. Inquiries for new projects saw another month of strong growth, with February now the fourth straight month that the score for inquiries has been above 60, an indication that architecture firms are hearing of more and more potential projects.
Rising employment rates buoy firm billings
Revenue gains have been paced by strong growth at firms in the Midwest and modest growth at firms in the Northeast and South. All three regions are showing momentum that should produce healthy recoveries in design activity over the next few months. Firms in the West, by contrast, are still reporting declining levels of billings. However, a continued upturn in design activity in the rest of the country should begin to pull up billings at firms in this region over the next several months.
By sector, the strongest billings scores are from firms specializing in the commercial/industrial sector, where readings have been at very healthy levels for the past few months. Billings at residential firms have also steadily turned up. An encouraging recent development is that firms focusing on institutional facilities have also reported modest gains over the past three months. Typically, institutional facilities are usually the last nonresidential building sector to recover from a downturn.
The upturn in billings at architecture firms is supported by general strength in the economy. In particular, the employment situation has improved considerably. The last three months have seen national payroll increases of at least 200,000 per month. (How much of this was the result of much milder weather conditions than usual in the Northeast and Midwest remains to be seen.) Still, the economy added more than 1.8 million new payroll jobs in 2011, and the first two months of 2012 have seen another 500,000 added. As a result, the national unemployment rate has fallen to 8.3 percent, the lowest level since early 2009.
Employment in the construction sector has not fared as well. While this sector has generally been adding jobs, there has been much more volatility. In 2011, 69,000 construction sector jobs were added—just over 1 percent of the 5.5 million payroll positions currently in the construction sector. The decline of 13,000 positions in February wiped out most of the January gains, so only 8,000 jobs have been added so far in 2012.
There has been a solid upturn in home-building activity over the past three months indicating stronger growth, assuming these gains are not solely related to the milder-than-usual weather. The economy generated about 600,000 housing starts a year for the past two years, but since last November this rate has increased to an average of almost 700,000 starts per month at an annualized rate. The overall upturn in economic activity pushed up GDP growth by 3.0 percent at an annualized rate in the fourth quarter of last year, after averaging only 1.2 percent growth in the first three quarters of last year.
The future of green
Even with the significant downturn in project activity over the past few years, almost a quarter of firms (24 percent) report that the share of green projects certified by a green rating system at their firm had increased since the construction downturn began. Fewer than one in five (19 percent) felt that the amount of green projects had decreased, while the remaining 57 percent felt that it had remained about the same. Institutional as well as residential firms were much more likely than commercial/industrial firms to report that the green share had increased over the past few years.
Moving forward, the overwhelming majority of firms feel that they will do more and more green projects over the next few years. Overall, almost two-thirds of firms feel that the share of projects that are green will increase either a little or a lot, while fewer than one in 10 feel that the green share will decrease.
Regionally, a higher share of firms in the South feels that their green share of projects will increase over the next few years. More than 70 percent of firms in this region expect the amount of green projects to increase, while fewer than 4 percent expect it to decline. In contrast, 54 percent of firms in the Northeast expect this share to increase, while 12 percent expect it to decline.
By building type, firms concentrating on the institutional sector expect the greatest gains in green projects at their firm, with 70 percent expecting gains and approximately 4 percent expecting declines. By contrast, just over half (51 percent) of commercial/industrial firms expect increases at their firms, while almost 14 percent expect declines in green projects.
This month, Work-on-the-Boards participants are saying:
- • There seems to be a lot more solid leads. Availability of financing is still the primary limiting factor, although it seems like some of our clients are working through that. —15-person firm in the Midwest, commercial/industrial specialization • We’re seeing a pickup because of the Eagle Ford Shale [natural gas extraction area] in South Texas. There is also a housing shortage for oilfield workers in the rural towns nearby. —16-person firm in the South, institutional specialization • There are new projects beginning, but competition is heavy. Some firms are proposing very low fees. We have also seen continued problems with obtaining financing. —3-person firm in the South, residential specialization
- • We have been trying to hire, and find it surprisingly difficult to find candidates. This is a good sign. —15-person firm in the Northeast, commercial/industrial specialization
