Architecture firm billings grew at a modest pace in September. While the Architecture Billings Index (ABI) score of 51.7 for the month means that slightly fewer firms reported increasing billings this month than in August when the score was 53.3, growth continued at most firms for the 20th consecutive month. However, there are some areas worth monitoring in the coming months. Two indicators of future work, client inquiries into new projects and the value of new design contracts, recorded their lowest post-pandemic growth rates in September as fewer clients are expressing interest in new projects now than in the last year and a half. However, backlogs at firms remained at a robust 7.0 months as of the end of September, still near record-high levels since we began collecting this data regularly more than a decade ago. Firms in all regions of the country reported billings growth for the second month in a row in September, with the strongest conditions reported by firms located in the Northeast and Midwest. However, there was more volatility by firm specialization this month. Both firms with a multifamily residential specialization, as well as those with a commercial/industrial specialization, saw their billings decline in September, for the first time since the post-pandemic recovery began. On the other hand, firms with an institutional specialization reported very strong business conditions this month, with billings reaching their highest level in several years. Architectural employment is high, but recession still looms – In the broader economy, employment growth slowed in September, with only 263,000 new nonfarm payroll positions added, in contrast to an average of 420,000 new positions added per month throughout the rest of the year. The construction industry added 19,000 new positions in September, and specialty trade contractors added 18,000, as they face similar issues to the architecture industry, with not enough staff available to keep up with workloads. Meanwhile, the architecture industry added an additional 1,100 positions in August (the most recent data available), following the 1,200 that were added in July. The profession now has 4,000 more employees than its pre-pandemic peak, although it remains well below its all-time high from immediately before the Great Recession. Despite the softening in hiring, The Conference Board’s Consumer Confidence Index increased for the second consecutive month in September, with consumer optimism buoyed by wage growth and declining gas prices. In addition, concerns about inflation dipped to the lowest level since the beginning of the year, and optimism about the future increased as well. However, concerns about a potential recession persist among consumers, and confidence may decline if OPEC’s recent cut of oil production leads to higher gas prices again. Looking ahead to 2023, optimism wanes – This month we asked firm leaders about revenue growth at their firms this year, and expectations for their firm’s revenue heading into 2023. Overall, the majority of responding firm leaders (59%) indicated that revenue has increased at their firm this year compared to 2021, for an average growth rate of 6.8%. Large firms reported the highest growth rate, at an average of 10.9%. And even though most firms have seen revenue growth this year, one in five firms (21%) indicated that they have experienced a decline, and 28% of firms also indicated that their current revenue estimates for 2022 now, as compared to the beginning of the year, are less than expected. However, one third of firms indicated that their revenue has exceeded expectations for the year, while 39% reported that revenue is currently in line with their expectations for the year. But many firms are less optimistic looking toward to 2023, with only 36% expecting revenue to increase from 2022. Firms expect that their revenue will increase by just 0.8%, on average, while smaller firms, with annual revenue of less than $1 million, are expecting a decrease in revenue of about 2.4% in 2023. Even large firms, with annual billings of $5 million or more, are only projecting an increase of 2.9%. At firms expecting a decrease in revenue in 2023, nearly half (44%) indicated that client nervousness was likely to be the major impediment to revenue growth that could have the single biggest impact in 2023, followed by high costs for materials and labor for construction projects (19%), rising interest rates (14%), and lack of staff/limited ability of firm to take on new projects (9%). While some firms are concerned about a lack of available contractors to work on projects and cutbacks in funding by federal, state, or local government, few selected those potential impediments to revenue growth as the single largest impacts for 2023. And at firms expecting an increase in revenue next year, the high level of backlogs entering 2023 was selected by 42% of firms as the one potential factor that could have the biggest impact on revenue growth, followed by strong employment and population growth in their area (18%), and funding from federal programs like the Infrastructure Investment and Jobs Act, CHIPS and Science Act, and/or the Inflation Reduction Act). In addition, more than one quarter of firms indicated that another factor would likely have the largest impact on their revenue in 2023, most notably a robust client base.
Architecture Billings Index (10-22-22)
- Architecture Billings Index, Economic Monthly Summaries
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