WORK ON THE BOARDS
June Brings Strong Growth to All Regions
Architecture Billings Index hits highest score since last August

by Jennifer Riskus
Research Specialist

Summary: Business conditions at architecture firms took a sharp turn upward in June as the ABI score approached 60. Billings were strong in all regions of the country, and, among building types, the institutional sector continued to lead the list in growth. And, in response to our monthly poll, more than a third of panelists reported that their firm’s managing partner has a business degree or formal business training, a figure that rises to 52 percent for firms with 50 or more employees.

Business conditions at architecture firms showed strong growth for the second month in a row as the AIA’s Architecture Billings Index (ABI) climbed to a score of 59.3, the highest since last August. In fact, the ABI has now increased each month since February, indicating that nonresidential construction activity should remain strong for the next several quarters. The inquiries score remained above 60 for the sixth month, signifying that new design project activity should continue to increase.

The summer months often bring strong billings as projects kick into high gear, and this year is no exception. Billings growth at firms in the Northeast region accelerated in June, and growth was reported in all other regions of the country as well. The South reported its strongest pace of growth since December 2005, while the West reported a score of 57.1, indicative of some of the best business conditions there recently. The Midwest reported a minor slowdown, but with a score of 53.6 still remains elevated well above where they were for most of the last year.

The three major sectors of the construction industry (residential, commercial, and institutional) also showed continued growth in June, with the institutional sector posting the strongest growth, as it has for the entire year so far. The residential sector continues on the same steady path of moderate growth that it has been on for the last few months, following a steep downturn in 2006. The commercial/industrial score essentially is unchanged from May at 55.8.

Broader economy more mixed
Although billings at architecture firms continue to strengthen, the broader economy is more mixed. According to the Federal Reserve’s Beige Book, published in mid-June, office rents are rising in the Boston, New York, Philadelphia, and San Francisco districts. The Philadelphia, Richmond, Minneapolis, and Dallas districts are also showing an increased demand for industrial space, while the Chicago district reported that industrial growth is still slow. Employment growth remained lackluster in June, with only 132,000 new jobs added, compared to nearly 200,000 in May. Construction employment has also been relatively weak recently, adding just 12,000 new jobs in June while shedding a total of 44,000 jobs since its most recent high point last September. The Consumer Confidence Index also dipped in June, falling to its lowest score since last fall, largely due to a more negative perception of present-day business and employment conditions.

Many managing partners have architecture and business training
This month, we asked panelists about the educational background of their firm’s managing partner. Nearly all respondents (91 percent) indicated that their managing partner has a design degree, while more than one in three (38 percent) reported that they have a business degree or formal business training (e.g. executive education courses, distance education courses). In fact, 52 percent of large firms (firms with 50 or more employees) have managing partners with a business degree or training, compared to just 27 percent of small firms (firms with fewer than 10 employees). Managing partners at small firms are more likely to have business training, other than a business degree (19 percent versus 8 percent), as compared to large firms where the share of those with degrees and those with training is equal (26 percent each). Just 22 percent of managing partners have a specialty certification from an organization such as CSI or LEED, and just 7 percent have a degree in a field other than business or design (such as social sciences, humanities, or mathematics).