by Jennifer Riskus
AIA Research Specialist

Summary: Business conditions at architecture firms remained strong in December, and inquiries began to rebound after slowing in the late fall. Billings growth resumed in the West after recent declines, and commercial/industrial firms continued to report the strongest billings by sector.

Considering projects that had been worked on over the past five years, firms reported that 67 percent of design awards (by dollar volume) were for projects for which the design and construction phases proceeded without major problems.

Billings at architecture firms held steady in December to close out the year with an Architecture Billings Index score of 55.4, the highest reported since July. Despite ongoing concerns about the economy, our ABI panel members reported that billings growth remains relatively healthy, for now. Inquiries also strengthened in December, after slowing further in November, but at 58.1, they remain well below the 2007 peak of nearly 67.

Business conditions in the West improved in December, after declining for the three previous months. Billings growth continued to accelerate in the South and Northeast, with scores in the Northeast climbing to their highest point since mid-summer. The pace of growth slowed somewhat in the Midwest after a slight uptick in November, revealing signs of a sustained period of weakness.

Firms with a commercial/industrial specialization continue to report the strongest business conditions, with billings climbing to the second highest score of the year (in fact the second highest of all time). Billings growth continued at a moderate pace for firms with an institutional specialization, and firms with a residential practice reported the fifth month in a row of declining billings.

Nonresidential construction leads last-quarter growth
Preliminary data for fourth-quarter real GDP growth are not yet available; however, the final revision for the third quarter indicates that in late 2007, the GDP grew at a strong, inflation-adjusted annual rate of 4.9 percent. One sector contributing to this growth was nonresidential structures, a fact borne out by the strong scores posted by the commercial/industrial and institutional sectors in the Architecture Billings Index for much of the year.

On the other hand, December’s employment situation was bleak, with just 18,000 total jobs added. The construction sector alone shed nearly 50,000 jobs. The total number of new jobs added in 2007 was just 1.3 million, down from 2.3 million in 2006. In addition, the unemployment rate in December rose sharply, to 5.0 percent.

Two-thirds of projects have no serious design/construction problems
This month, we inquired about the frequency of design and construction problems on projects that had been worked on over the past five years. Firms reported that by far the largest share (67 percent) of design awards (by dollar volume) were for projects for which the design and construction phases proceeded without major problems. However, one in 10 projects were never constructed, and 11 percent were held up by major construction delays. Nearly one in five projects encountered serious delays during the design phase, and 18 percent required major design modifications after the initial design was developed. (Responses were not mutually exclusive, meaning that one project could fall under multiple categories.)

Firms specializing in residential design reported a smaller share of projects that proceeded with no major problems (60 percent), compared to firms with a commercial/industrial or institutional specialization (70 percent and 68 percent respectively). Residential firms also reported that a much higher share of their projects never got past the design phase—or were never constructed— than other types of firms. Firms with annual billings under $1 million also were more likely to have projects that were never built than larger firms (15 percent versus 8 percent). The largest firms, with annual billings over $5 million, had the lowest share of projects with major construction delays, just 6 percent.