While architecture firm billings grew for the 18th consecutive month in July, the pace of growth continued to slow. The Architecture Billings Index (ABI) score of 51.0 for the month is the lowest since January, and marks the fourth straight month with a lower score than the previous month.
Inquiries into new projects also continued to slow this month, although the value of new design contracts rose slightly from June to July. While both of these indicators remain below their mid-2021 peaks, they show that there remains interest in new projects going forward.
Gas prices decrease, but inflation remains an issue
Inflation remained a critical issue in July, although it did not grow further from June to July. Declining gas prices were a key contributing factor, and they are expected to continue to decline through August. Travel prices, including airfare, lodging, and rental cars, also declined in July. Food prices continued to increase, and despite some overall moderation in inflation, the expectation is that when the Federal Reserve Board of Governors meets again in late September, they will raise interest rates by another 0.5 percent.
In addition, the July jobs report was particularly strong, with 528,000 nonfarm payroll jobs added. Total national employment levels have now finally surpassed their pre-pandemic highs. Construction employment added an additional 32,000 new jobs in July, and the industry is now 82,000 positions above its pre-pandemic peak. Architecture services employment saw strong growth in June as well, the most recent data available, adding 2,300 new positions after declining in both April and May. Total industry employment is now back above pre-pandemic levels once again.
Stalled projects impact architects differently based on region
Amid concerns about a potential economic slowdown or recession, there has been increased talk of projects stalling or being delayed or cancelled. So far, this issue does not seem to be a serious concern to most architecture firms. Overall, 58 percent of responding firms this month indicated that on a scale of 1 to 5, with 1 being not very serious and 5 being very serious, they rate the issue of stalled/delayed/cancelled projects as a 1 or 2. However, more than one quarter of firms, 28 percent, indicated that they consider it to be a somewhat serious issue, rating of a 3, while 14 percent rated it as a 4 or 5, meaning a more serious issue. Small firms and firms located in the Midwest and West regions were more likely to consider this to be a more serious issue; 21 percent of small firms with annual revenue of less than $250,000, 19 percent of firms located in the West, and 17 percent of firms located in the Midwest rated it as a 4 or 5.
These firms reported that a variety of factors have contributed to projects at their firms being stalled/delayed/cancelled recently, with 66 percent citing rising material prices, 64 percent citing contractor bids coming in too high or schedules too long, 61% citing construction budgets insufficient for projects as currently conceived, 55 percent citing changing market conditions making clients nervous about proceeding, and 50% citing supply chain issues/materials availability.
When asked to select which one of these factors was the most significant contribution to projects at their firms being delayed/stalled/cancelled, the top two choices were related to issues with project construction, followed by 20 percent selecting changing market conditions making clients nervous about proceeding. Despite concern about recent interest rate increases, just 1 percent selected that as the most significant factor for delayed/stalled/cancelled projects, while 5 percent selected financing problems.
