Taking Stock

With tax filings now in the rear-view mirror, it’s possible to have some perspective on the current state of AEC industries. Kermit Baker, the inestimable chief economist for the AIA, offers a positive look forward and back for the architecture business:

2015 was a great year for nonresidential construction activity and generally a good year for revenue at architecture firms. Overall, almost two thirds of firms reported that they met or exceeded their expectations for profitability for the year, with over 40% exceeding expectations. Firms that met their profitability expectations listed “ability to negotiate fees” as the most important factor in achieving these results, followed by their ability to attract new clients and new business, ability to manage existing projects, ability to attract qualified staff and experienced firm leadership, and ability to manage firm overhead costs like rent and health care contributions.

The economy is looking reasonably healthy, and for the first time in many years the construction sector is one of the bright lights in the economic outlook. New single-family housing construction, in particular, is poised for healthy growth. Though single-family housing starts have seen solid gains in recent years, they still are less than half of levels seen prior to the downturn. The importance of the construction sector to the economy can be seen in the employment figures. On net, construction has added 220,000 payroll positions over the past two quarters, accounting for almost 15% of total job growth in our economy over this period even though construction accounts for only about 5% of payroll positions nationally.

In 2016, after a slight decline in January and a weak recovery in February, architecture firms were reporting healthier business conditions in March. The AIA’s Architecture Billings Index (ABI) was 51.9, reflecting the strongest month-to-month growth since last October. New project inquiries, at 58.1 for the month showed somewhat slower growth than the February reading, while the new design contracts index of 51.8 showed a very modest acceleration from the 51.7 reading in February.