Architecture firm billings continued to experience strong growth in April. While the pace of growth slowed slightly from March, the ABI score of 56.5 for the month still indicates strong business conditions at most architecture firms (any score over 50 indicates billings growth). In addition, inquiries into new projects remained strong as well, as did the value of new signed design contracts. While both of these indicators of future work have slowed in recent months from the elevated levels seen in mid-2021, they remain very strong overall, and are a good sign of work in the pipeline for firms. In welcome news, billings finally began to rise again at firms located in the Northeast in April, following a protracted seven-month period of decline. Billings also continued to grow at firms in the rest of the country, with the firms located in the West in particular seeing a surge over the last three months. Business conditions also remained positive at firms of all specializations this month. Firms with a commercial/industrial specialization reported the strongest growth, while firms with a multifamily residential specialization experienced a rebound from slower conditions at the end of 2020. Architectural services employment continues to grow – Inflation remained a critical issue in the larger economy in April, and while the pace of inflation growth moderated somewhat in April, the Consumer Price Index (CPI), still rose by 0.3% from March, and remains a significant 8.3% higher than April 2021. Although gas prices declined modestly in April, they have already rebounded, and energy prices and the cost of food and groceries have also continued to trend upward. In addition, the measure of core inflation, which excludes food and energy prices, increased by 0.6% in April, largely due to an increase in costs for services. Because of these ongoing inflation issues, the Federal Reserve raised the target rate for federal funds by half of a percentage point during their meeting the first week of May, the largest increase in 22 years. And it looks likely that there will be another increase by the same amount following their next meeting in mid-June. National employment continued to increase in April, with nonfarm payrolls adding 428,000 new positions. The largest gains were seen in the leisure/hospitality, manufacturing, transportation, and warehousing sectors. Architectural services employment continued to grow as well, with 700 new positions added in March, the most recent data available. A total of 1,500 new jobs have now been added to the pre-pandemic peak for the industry, although at 200,300 employees, the industry remains 8% below all-time high-water mark of 217,800 employees prior to the Great Recession. Rising costs of running a firm continue to be a concern – This month’s special practice questions asked firm leaders about rising costs of running their firms, and how their office space needs have changed since the onset of the COVID-19 pandemic two years ago. Managing the cost of running their firm is an ongoing issue for firm leaders, and at this time, 45% of respondents indicated that it is a major concern, 47% that it is a minor concern, and just 8% that it is not a concern. That share jumps to 24% of firm leaders at small firms (annual billings of less than $250,000) who reported that managing the cost of running their firm is not a concern, compared to just 5% of large firms (annual billings of more than $5 million). Firm leaders also largely expect that some of their major expenses of running an office will increase over the coming year, most notably healthcare costs, the cost of technology for business purposes (e.g., computer hardware, business/operations software, printers, mobile phones), and the cost of technology for design purposes (e.g., design software, BIM, virtual reality), with 78% of respondents expecting each of these expenses to increase. Healthcare costs and employee benefits other than health/dental were reported as the most likely expenses to increase “a lot” over the coming year, as reported by 29% and 27% of respondents, respectively. And overall, 30% selected healthcare costs as the one office expense that they expect to proportionately increase the most in 2022. Many firms also indicated that they expect staff salaries to be their largest increase for 2022. When asked what strategies their firm is enacting in order to better cope with rising firm expenses, 19% reported that they are outsourcing technical and support services (e.g., IT, website design, HR, financial), and an additional 19% indicated that they are deferring capital investments (e.g., technology). Few firms are considering changes to their physical office space, with 13% considering a move to a less expensive office space, and just 11% considering cutting back on office space, while 8% are considering renting/leasing equipment/supplies for their office instead of buying. And just 6% of firms are reducing employee benefits. Other measures reported by firms included increasing firm revenue, hiring freezes, and increased marketing. Finally, when asked about their office space needs now (or when their office fully reopens, if it has not yet done so) compared to prior to the pandemic, just over half of responding firm leaders (52%) indicated that they are about the same, while 30% reported that they need less space now, and 18% indicated that they need more space now. Firms located in the Midwest (23%) and large firms (25%) were most likely to report needing more space, while firms located in the Northeast were much more likely to report needing less space (44%). And on average, firms expect to need about just 3% less office space going forward than prior to the pandemic.
Architecture Billings Index (05-17-22)
- Architecture Billings Index, Economic Monthly Summaries
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