By Jennifer Riskus

Architecture firms continued to report an upswing in business conditions in October, as the AIA’s Architecture Billings Index (ABI) remained above 50 with a score of 52.8. (Any score above 50 indicates an increase in firm billings.) Firms have now reported billings growth for three consecutive months, and this month’s score is the highest in nearly three years, as an increasing number of firms are seeing improving conditions. In addition, inquiries into new projects also remain extremely strong.

For the first time since the Great Recession began, firms in all regions of the country reported billings growth in October. While these are preliminary numbers subject to revision, this is a very encouraging sign that the design recovery is becoming broader-based. Certainly, there are still pockets of the country not yet seeing a turnaround, but even firms located in the West have now reported their third consecutive month of increasing billings after experiencing nearly five straight years of declines.

When looking at billings by firm type, only firms with a commercial/industrial specialization reported weakness in October. These firms have experienced declining billings for the last six months, even as firms specializing in other sectors have seen their billings climb upwards. Firms with a residential specialization are experiencing very strong firm billings, and firms with an institutional specialization had their third consecutive month of growth, a significant rebound on the heels of four years of softer conditions.

Payrolls and GDP grow

The general economy also continued to improve in October, as 171,000 nonfarm payroll positions were added nationally, slightly above the average monthly gains for the year thus far. Though the architectural services sector shed more than 2,000 positions in September (the most current data available), this was most likely due to seasonal staff adjustments. Payrolls remain 3,000 above September 2011 levels, and have exceeded year-ago levels for eight straight months. Preliminary economic reports for the third quarter of 2012 show that the GDP grew at an annual rate of 2.0 percent, a healthy uptick from the 1.3 percent growth rate in the second quarter. This growth was primarily led by increases in personal consumption expenditures, federal government spending, and residential fixed investment.

Economy for 2013 still gives architects pause

The AIA asked its ABI panelists to look forward to 2013 and anticipate business conditions, potential bumps in the road, and positive signs that may lie ahead. Firms were first asked to rate their degree of concern with a variety of business issues for the coming year, and then select their top three business-related concerns for 2013. Despite the recent improvements in the economy, more than half of the responding firms (57 percent) cited coping with an unpredictable economy as one of their biggest concerns for 2013. One third of firms indicated that identifying new projects, markets, and clients is one of their biggest issues, and 30 percent are worried about negotiating appropriate project fees. In addition, nearly as many respondents (29 percent) were concerned about dealing with competing firms/contractors, while 22 percent cited managing the rising costs of running a firm.

Firms also were asked to indicate which issues are unlikely to be concerns for the coming year. The top responses included firm ownership issues (ownership transition/merger and acquisition activity), developing international design opportunities, finding contractors for projects, and replacing staff approaching retirement age. Smaller firms were less concerned than larger firms with developing international work and replacing retiring staff, while large firms were more likely to be unconcerned about finding contractors and managing cash flow.

This month, Work-on-the-Boards participants are saying:

• We will be very busy through the balance of this year with a steady backlog for 2013. —85-person firm in the South, commercial/industrial specialization.

• Business is moderately better. We are seeing a pickup in high-end residential and continued velocity in the small corporate interiors sector. —Seven-person firm in the Midwest, residential specialization.

• Things were cautiously optimistic before Superstorm Sandy. Now we’re all just trying to get our offices [and] projects back to full power and full function. —Eight-person firm in the Northeast, commercial/industrial specialization.

• Projects and payment for work completed are slowing again after six to eight months of improvement. In addition, construction costs are very unpredictable, and projects appear to be over the budgets that were developed in the last six to 12 months. —32-person firm in the West, mixed specialization.