by Jennifer Riskus
Manager, Economics Research

Summary: Business conditions continued to soften in March as the Architecture Billings Index (ABI) fell to 39.7. Weakness persisted in all regions of the country and across all sectors of practice, except for firms with an institutional specialization. Our panel also tells us that nearly 8 in 10 firms have worked on projects with “green” features over the past three years. At firms doing green work, just over a quarter of their projects involved a green rating system.

Business conditions at architecture firms continued to weaken in March, with the Architecture Billings Index recording 39.7, its lowest score since it was instituted in 1995. (Any score above 50 indicates growth.) While this score is not unexpected, given the weakness in the broader economy, it is nevertheless a sign that firm billings are continuing to soften at firms across the country. Inquiries for new work also slowed in March, falling below 50 for only the second time in the history of the index. Clients seem to be delaying projects until they see some sign of a turnaround.

Weakness in all geographic regions
The weakness in the economy deepened in all regions of the country in March. Of all regions, architecture firms in the Midwest reported the weakest business conditions for the fourth month in a row. Even firms in the Northeast and South, which showed strengthening billings as recently as two months ago, are now reporting a significant slowdown.

Considering business conditions by practice sector, only firms with an institutional specialization reported a score above 50 in March. The residential sector continues to slump (it is down by nearly 20 points from March 2007) while the commercial/industrial sector is also reporting a serious slowdown.

Larger economy, consumer confidence on a downturn
The larger economy also continues to show signs of a downturn, with employment declining by 80,000 jobs in March. Payrolls have decreased by more than 200,000 jobs for the year thus far. Construction employment also continued to slide, shedding 51,000 jobs this month, led primarily by a decline in specialty trade contractors, both residential and nonresidential. In addition, the unemployment rate jumped up by 0.3 percent in March to 5.1 percent, the highest it has been in two and a half years. Furthermore, this month’s University of Michigan’s index of consumer sentiment plunged to a score of 63.2, the lowest score since March 1982. A year ago, the score was 87.1, more than 25 points higher.

But going green is growing
The share of architects working on projects with “green” features continues to grow, up from 72 percent last year to 79 percent now. However, on average, these projects have encompassed just 35 percent of a firm’s project workload over the last three years. And of those green projects, just one quarter were involved in a green rating system (e.g., the U.S. Green Building Council’s LEED® certification, the U.S. Department of Energy’s Energy Star, Green Building Initiative’s Green Globes). Firms with a commercial/industrial specialization report the smallest share of project workload on green projects (25 percent, compared to 37 percent each for institutional and residential firms), but a higher share of their green projects (26 percent) are involved in a green rating system than at institutional (22 percent) and residential (16 percent) firms.

As far as the green rating systems that have been used, LEED is by far the most popular (68 percent have used it over the past three years), followed by Energy Star (29 percent), local programs such as Austin Energy Green Building (16 percent), and Green Globes (4 percent).