by Jennifer Riskus
Research Specialist

Summary: A second month of slower billings growth was reported at architecture firms in September, bringing the ABI to its lowest score in nearly a year and a half. Weakness was reported in all regions of the country, as well as all specializations, in particular the residential and institutional sectors, both of which reported a decline in billings at firms in September. The ongoing troubles in credit markets continue to have an impact on projects at architecture firms; firms with a residential specialization have been particularly hard hit.

Billings growth at U.S. architecture firms slowed for the second month in a row in September. The Architecture Billings Index (ABI) had a score of 51.1. Because the score is above 50, it does show growth, albeit very slight. This is the slowest pace of growth since June 2006, which indicates that firms and clients are starting to feel the pinch of the current slowdown in the economy. Inquiries, however, remained healthy with a score of 61.4, indicating that there is still an adequate supply of work in the pipeline.

Business conditions weakened in all regions of the country in September, with the Midwest reporting its first decline in billings since last September. Continued weakness in the manufacturing sector may be a contributing factor to this. The other three regions reported ongoing growth, but the pace has slowed over the last several months, most notably in the Northeast and West.

Weakness was also reported for the residential and institutional sectors, as both reported declining billings. For the institutional sector, this is the first month with a score below 50 since December 2004. Business conditions also weakened at firms with a commercial/industrial specialization, but continued to show some degree of growth.

Slow employment gains, too
Nationally, monthly employment gains remained low, with just 110,000 new jobs added in September. Construction employment reported its third straight month of losses, shedding 14,000 jobs, while the manufacturing sector reported the loss of 18,000 jobs. In addition, the Conference Board’s Consumer Confidence Index fell for the second month in a row in September to its lowest level in nearly two years. Consumer confidence has declined for six of the first nine months of 2007. The Federal Reserve’s most recent issue of the Beige Book, released in early September, reports that modest growth continues in some parts of the Midwest (Cleveland, Chicago, Minneapolis), but that slower growth can be found in several large cities across the country, including Philadelphia, Richmond, Dallas, and San Francisco.

Credit concerns not going away
This month, our special questions followed up on last month’s question about troubles in the credit market. In September an even higher share of respondents, 32 percent, reported that the credit market troubles that began in August have had an impact on their firms. And of those indicating that they have felt an impact, nearly 4 in 10 said that the impact of the credit industry troubles on projects at their firm was more severe in September than in August.

This impact is also being felt more by firms with a residential specialization than those who work primarily in the nonresidential sector. In fact, 83 percent of residential firms anticipate that the impact of credit industry troubles will extend into 2008, compared to just 64 percent of institutional firms and 56 percent of commercial/industrial firms. Problems with the credit industry have had a greater impact on residential firms because clients are no longer able to finance the purchase of a new home. While these same problems can certainly impact the development of nonresidential projects as well, nearly half of firms with a commercial/industrial specialization anticipate that the problems will not affect their projects past the end of the year.