ABI is up – Economy still Sucks

The Architecture Billings Index (ABI) closed at 43.1 in July, 2009 representing a 6 point jump from the June 37.7 low.

The index collects billings data from Architects that are members of the American Institute of Architects (AIA). A median score of 50 represents zero growth in billings. Scores above 50 represent an increase in billings while scores below 50 represent a decrease in billings.

While the July numbers represent an improving condition, they still indicate that billings continue to decrease. It’s a slowing of Bad News. AIA Chief Economist Kermit Baker states, “In addition to a very competitive marketplace, architects continue to report that lenders have still not yet fully opened credit lines and that the stimulus funding has so far provided limited project activity for the design community overall.”

The billings index is a leading indicator of construction activity from 9 to 12 months outward. The index reached an all time low in January at 33.3.

Extrapolating out 9 – 12 months, this indicates that construction activities (and unemployment) continue to fall and will be at their all time low between September 2009 to January 2010. From that point, one could expect the situation to temporary stabilize. Understanding that the definition of stabilize means to stop free falling, and begin a slow, gradual decline. Actual increases in construction will not occur until 9-12 months after the ABI crosses the 50 marker.

The Architectural community has not seen an increase in billings since January 2008 and has received the brunt of this economic recession. Anytime the demand for construction drops, so does the billings of all engineering professions. Normally architects & engineers would modify their marketing tactics to diversify into other market sectors. Unfortunately, this recession was more about accessibility to cash than it was about specific sectors. The failure of the banks to release credit and money has affected all sectors.

The overall situation for the Architectural and Engineering professions is not good. With an abundance of housing in foreclosure (or about to be foreclosed) the residential sector for new home design is practically non-existent. Furthermore, competition among Architects for what few residential projects do exist is fierce. Driving profits (and salaries) into the dirt.

The commercial sectors have been hit just as hard, and it will only get worse. As businesses close they leave a huge vacancy rate in retail space. When the situation finally does turn around, businesses will seek out the more affordable vacant space before constructing new. Remodel design is always the first to recover from a recession. Unfortunately, this sector provides the lowest profit margin for architects and engineers. Often, these jobs are first grabbed up by Architects & Engineers who were previously laid off and now are struggling to earn a living from home.

Slowing economies also mean less demand for goods, which affect the industrial sector. About the only sector which shows any stability is the Government Sector, which (go figure) always seems to be growing. This is a good thing for some architects & engineers, but many choose not to work in this sector because of the massive bureaucracy involved and the expense of paying lobbyists to secure the work. It is usually only larger firms who seek out these projects.

Ultimately, the uptick in the ABI means is a good sign for the economy, but until the index starts to show an actual increase it is certainly not time to jump for joy.

Please help the cause by Sharing this post with your friends. It really does matter. Click on an icon below to share this post: