Billings at U.S. architecture firms were off for the fifth straight month in November. In comparison, the downturn in architecture firm activity lasted only six months after September 11, 2001. However, in this downturn each of the monthly losses have been relatively modest. Also, inquiries for new work at firms have remained positive. Again, in contrast, there were two months where inquiries declined in the aftermath of September 11.

Business conditions regionally continue to remain quite fluid. Firms in the West still report weak business conditions, while firms in the South have reported consistent gains during this recent period of weakness. In the last few months, firms in the Northeast have reported weaker conditions, while firms in the Midwest have seen improvement.

Residential firms report the strongest growth in billings, but mixed practices (with less than 50% of billings in any major sector) also are reporting billings gains. Firms concentrating in commercial/industrial projects report the weakest conditions. However, firms in all specialization categories are seeing increases in inquiries.

Soft spot
The Federal Reserve Board acknowledged at its recent meeting that the economy currently is in a “soft spot.” There is substantial evidence that the 4.0% growth achieved by the overall economy in the third quarter will not be repeated in the fourth quarter. The employment report for November also left little doubt that the economy is in a temporary lull.

Business payrolls declined by 40,000 during the month, and the national unemployment rate rose to 6.0%, its highest level since the third quarter of 1994. However, a leading indicator for the economy rose in November for the first time since June, pointing to a possible return to growth early next year.

Firms are nervous
With the recent softening in business conditions, firms are understandably nervous about prospects for 2003. We asked members of our panel for their best estimates for next year’s billings.

Overall, firms see some improvement. About 40% of firms expect billings at their firms to increase, about a third expect them to remain flat, and a quarter are expecting declines. While there is not much difference in the 2003 outlook across regions or by firm specialization, there is a considerable difference across firms of different sizes.

Smaller firms (with annual billings under $500,000) are generally optimistic about the coming year. Two-thirds of firms in this category expect billings to increase next year, although most expect the increases to be relatively modest. At larger firms (with billings in excess of $5 million) the outlook is more pessimistic. Over 40% of firms expect billings declines next year, while less than 30% expects billings to grow.

Copyright 2002 The American Institute of Architects. All rights reserved.