by Jennifer Riskus
Research Specialist

Summary: The AIA’s Architecture Billings Index (ABI) showed stronger growth in October, rebounding slightly from a steep downturn in August and September, with a score of 53.2 (where any score above 50 shows growth). Despite the ongoing slowdown in the economy overall, ABI panel members continue to report at least modest billings gains each month. In fact, most panelists feel that the impact of current credit market troubles is no worse in October than it was in September. Considering this month’s special topic of outsourcing, few firms report outsourcing work offshore. Large firms and firms located in the western part of the country are most likely to do so.

The AIA’s Architecture Billings Index (ABI) showed stronger growth in October, rebounding slightly from a steep downturn in August and September, with a score of 53.2 (where any score above 50 shows growth). Despite the ongoing slowdown in the U.S. economy, ABI panel members continue to report at least modest billings gains each month. Inquiries for new work, however, slowed in October to their lowest rate of growth in a year and a half. They remain healthy overall, though, with a score of 58.1, indicating that new projects are still being planned.

Regionally, billings growth slowed once again at firms in the Northeast and South, while business conditions in the West declined for the second month in a row. This is the first time in nearly three years that billings have fallen for two consecutive months in the West. Growth picked up slightly in the Midwest, continuing to rebound from a late summer slowdown.

Weakness persists at firms with a residential specialization, as billings in October remained below 50 for the third month in a row. And although business conditions continued to slow at firms with a commercial/industrial specialization, overall they remained fairly healthy. Firms with the majority of their work in the institutional sector were the only ones to show stronger growth in October, as they continue to rebound from a 17-month low in August.

Credit market troubles have mixed effects
Of the 60 percent of panelists who indicated that they have felt some impact from the ongoing credit market troubles on current projects at their firm, the majority feel that conditions in October were about the same as in September. However, more than 12 percent indicated that the impact on projects at their firms was more severe this month. Most acutely hit were firms in the Midwest, where 21 percent indicated that the impact was more severe in October than September. Despite this ongoing issue in the overall economy, the preliminary estimate for third quarter GDP shows an increase at an inflation-adjusted annual rate of 3.9 percent, slightly higher than the 3.8 percent growth in the second quarter. Another good sign: employment grew by 166,000 jobs in October, nearly doubling the number of jobs added in each of the previous two months.

Offshoring is the province of firms in the West, large firms
This month, the special question put to the ABI panel concerned firms outsourcing their domestic design projects offshore, that is, subcontracting work to individuals or firms in other countries that are not part of their firm. The share of firms that have outsourced offshore remains small at 19 percent of all respondents. However, 30 percent of firms located in the West have outsourced work offshore. Large firms—with annual billings greater than $5 million—also are more likely to have outsourced work offshore; 42 percent have done so.

Of those firms that have outsourced offshore, nearly two-thirds do it rarely. For those that do it frequently or occasionally, the most important factor when deciding to outsource offshore is to alleviate workload, i.e., to supplement current staff to cover peak demands. Of the 81 percent of firms that have not outsourced offshore, just 12 percent have even considered it. The most commonly cited reasons for not outsourcing offshore were the difficulty of providing oversight and the availability of better options domestically.