by Kermit Baker, PhD, Hon. AIA
Chief Economist

Summary: U.S. architecture firms reported another decline in billings in January as concerns over a slower economy appear finally to be affecting the nonresidential construction sector. Businesses are expressing a growing uneasiness over the possibility of a national economic recession and, as such, are cutting back on their plans for expanding their facilities. Architecture firms specializing in the commercial/industrial sector have reported the steepest downturn over the past several months.

The AIA’s Architectural Billings Index (ABI) stood at 50.7 in January, where any score above 50 indicates growth in design activity, and any score below 50 indicates a decline. The January reading was the lowest in more than 18 months and, in all likelihood, points to a continued softening in the nonresidential sector. Inquiries for new work, while rebounding a bit in January, also have been softer in recent months. Firms in the Midwest and South have reported an easing in recent months, while firms in the West report stabilizing conditions after a few months of downturn. Conditions in the Northeast remain healthy, with firms in this region reporting an upturn in recent months.

Commercial/industrial firms have reported the sharpest downturn since the ABI hit its recent high last July. However, institutional firms and those with a mixed practice have also reported fairly steep falloffs. Residential firms have seen a bit of a rebound after reporting declining conditions for most of the past two years.

The national economy also has weakened
The recent softening in architectural billings is reflecting a more widespread downturn in the economy. Gross domestic product, the broadest measure of economic activity, grew by just 0.6 percent during the fourth quarter of last year, matching the growth rate of the first quarter of 2007. That represents the lowest level of growth for our economy since the last national economic recession in 2001.

Another sign of economic weakness is the decline in payrolls in January. The net loss of 17,000 jobs for the month marked the first decline since the third quarter of 2003 as we were still emerging from the last recession. Business confidence levels also point to emerging concerns. The Conference Board’s CEO Business Confidence Survey stood at 39 in the fourth quarter of last year, where scores of 50 or better indicates a positive outlook. That score was the lowest since the fourth quarter of 2000.

Further acceptance of building information modeling
The adoption of building information modeling (BIM) at architecture firms in recent years has been very rapid. In surveying our Work-on-the-Boards participants just a year ago, one in five firms was using BIM software on billable projects, but 44 percent had no plans to acquire it. When we asked the same question this month, the share of firms using it on billable projects had risen to 31 percent, and the share with no plans to acquire it had dropped to 35 percent. The share of responses for other categories remained fairly constant.

Thirty-eight percent of respondents think that BIM will become the industry standard over the next three years. Over half (51 percent) think that this will happen sometime after three years, while the remaining 11 percent feel that it never will become the industry standard. Not surprisingly, larger firms are further up the adoption curve. Over two-thirds (69 percent) of firms with annual billings of $5 million or more are currently using BIM on billable projects, while almost half (49 percent) feel that BIM will become the industry standard within three years.