(09-20-19)
Business conditions at U.S. architecture firms so far this year have been disappointing. Reports from firms regarding their August performance clearly point to another setback. The national ABI score for the month was just 47.2 (any score below 50 signifies a decline in aggregate design activity). Additionally, the national score for new design contracts, which measures new design work coming into architecture firms, was just 47.9 (again, any score below 50 signifies a decline in aggregate new design contract activity). So, architecture firms reported a rare double decline in both new work coming into their firms and design work that was being completed. Regionally, firms in the Midwest bore the brunt of this recent slowdown. Firms in this region reported a reasonably steep decline in August on top of a comparable setback in July. Firms in the Northeast reported another modest setback in billings for the month, extending the string of monthly declines to seven. Firms in the West were the only ones reporting growth on average. Firms specializing in commercial and industrial facilities likewise reported a drop in design activity in August, coming on the heels of a fairly significant downturn in July. Firms concentrating in either the multifamily residential or institutional sector reported some modest gains in August. Firms in both sectors had seen several months of declining billings prior to August. Economy continues to expand, but pace of growth is slowing – Having just passed the ten year mark, and thereby setting a new record for duration in the post-World War II era, the current economic expansion continues. Nonetheless, signs of age are finally beginning to show. Overall GDP grew by 2.9% last year, which accelerated to a 3.1% pace in the first quarter of this year. However, economic expansion slowed to 2.0% in the second quarter, and this quarter is shaping up to produce comparable results. Payroll gains also are slowing. Almost 2.7 million net new payroll positions were added in 2018, but this year through August we are on a pace to add just 1.9 million positions. Manufacturing activity increased about 4% last year, and in doing so added 264,000 new manufacturing positions. This year, manufacturing activity has been modestly declining, a reflection of the slowing demand for U.S. goods internationally as the economies of many of our key trading partners have begun to soften. Weaker export markets, coupled with ongoing concerns over tariffs on imported goods, both already imposed or threatened, has helped to push down business confidence scores to levels last seen as the economy was emerging from the Great Recession. Still, there are other indicators suggesting that this period of economic growth has some momentum left. In spite of slower job growth, the national unemployment rate stands at 3.7%, near a low point for the past several decades. Consumer inflation is running well below 2% at present, down from around 2.5% last year. Overall producer inflation is running around 1%, being held in check by lower food and energy costs. Low inflation is helping to keep interest rates unusually low this far into an economic expansion. Favorable unemployment and inflation rates, coupled with rising wages are keeping consumer confidence levels near their highest level in decades.
