by Jennifer Riskus
Manager, Economics Research

Summary: The ABI fell dramatically this month to its lowest score in more than six years. Weakness persisted in most regions of the country, and firms with a commercial/industrial specialization were particularly hard hit. More firms reported that employee turnover decreased than increased, due in part to the ongoing economic uncertainty.

Billings at architecture firms took a dramatic downward turn in February as the ABI fell to 41.8, the lowest score since the immediate aftermath of September 11 in October 2001. The ABI has now fallen more than 13 points since December, which is the largest two-month drop ever recorded in the dozen years of the index. This drop serves as the clearest indicator yet that softer business conditions are coming. Inquiries growth continued to slow this month, as the score fell to 54.3. Although any ABI score above 50 indicates growth, this is the lowest indication of inquiries growth in more than five years.

All regions of the country, with the exception of the Northeast, reported significantly weaker business conditions in February. But even the Northeast is showing signs of softening, with the score falling to 51.5 from 61.8 just two months ago. The score of 48.3 in the South is the first score below 50 in that region in nearly six years.

As could be expected, firms with residential specialization continued to report weak conditions. More noticeable, however, is the dramatic slowdown at firms with commercial/industrial specializations—from 54 in January to a current score of 40.6. As we predicted earlier this year, the types of projects that these firms specialize in are being particularly hard hit by the current weakness in the economy. On the other hand, firms with an institutional specialization are seeing billings at their firm continue to strengthen as they recover from their slowdown of last summer.

Payrolls down again
Continuing weakness in the economy is apparent as well, as employee payrolls were down for the second month in a row in February, shedding 63,000 jobs. Construction employment is down by 39,000 jobs and has shed more than 330,000 jobs since its peak a year and a half ago. In the most recent Beige Book, released by the Federal Reserve on March 5, two-thirds of reporting districts indicated that they are seeing a softening of business activity. Office vacancies are on the rise in cities such as New York City; Washington, D.C.; Memphis; and Las Vegas, and some districts are also reporting a 20 percent year-over-year drop in home sales. The decline in real-estate sales is particularly noticeable in Boston, Minneapolis, Richmond, and St. Louis.

Downturn slows job turnover
To ascertain whether job turnover is being affected by the economic downturn, this month’s special question asked whether turnover at architecture firms had changed this year, as compared to last year. Almost a quarter (24 percent) of responding firms indicated that staff turnover at their firms has decreased, just 14 percent reported that turnover increased, and the majority (62 percent) reported that it remained about the same. This stands in contrast to 2006 (when this question was last asked), at which time just 14 percent indicated that turnover decreased and 35 percent indicated that it increased.

For those firms in which turnover has decreased compared to last year, the primary reason was ongoing economic uncertainty and fewer opportunities available in the marketplace. However, and perhaps because of this, firms are taking more steps to reduce turnover, including increasing compensation relative to competitors and merging with or acquiring another firm. Few firms (14 percent) indicated that decreased turnover was due to staff who are older and more entrenched.