What are the current economic conditions within the architecture, engineering, and construction industry? How are the market sectors and geographic regions performing?
There are quite a few indicators that track the health of the industry, and we’ve gathered many of the major metrics in one place to make your environmental scanning easy as you head into planning for 2019!
Architectural Billings
The first stop on this tour of the A/E/C industry’s economic health is the American Institute of Architects’ Architectural Billings Index (ABI), which is broken into several categories. Overall, the ABI for billings is at 51.1 for the latest month. As the ABI is a diffusion index, any score above 50.0 demonstrates growth over the prior month, while any score below indicates decline. The most current data available is for September 2018, and the score of 51.1 demonstrates a billings increase over August. However, the August score was 54.2, so we know that although the billings continue to increase, there is a decreasing rate of growth.
The AIA tracks Design Contracts and Project Inquiries as well. While billings is a lagging indicator – that is, the work has already happened – Design Contracts are very much a real-time indicator, capturing what is happening right now. In August, there was a retraction in contracts with a score of 49.6. However, the index rebounded in September with a score of 54.1, a significant jump. Project Inquiries is a leading indicator of future workload. The September score of 58.8 is impressive, building upon the 58.0 score of the prior month.
Additionally, with the latest ABI survey, the AIA asked architects about revenues for the year, and as an average, AIA members are projecting a net revenue growth of 7.5% for the year.
The ABI is also broken into four large geographic regions. Three of the four experienced billings growth in September:
- Midwest = 59.7 (52.5 in August)
- West = 51.3 (54.2 in August)
- South = 54.1 (57.0 in August)
The Midwest experienced a major increase in growth, while the West and South both reported slowing growth. However, the Northeast did not fare as well, seeing a steeper decline in billings than it had the prior month:
- Northeast = 46.6 (46.9 in August)
In addition to geographic regions, the ABI is also broken into major market sectors as follows:
- Commercial/Industrial = 50.8 (53.6 in August)
- Institutional = 55.1 (52.3 in August)
- Residential = 54.9 (55.6 in August)
All markets experienced an increase in billings in September, although the growth in Commercial/Industrial as well as Residential billings slowed compared to the August data.
A/E/C Employment Trends
The next series of charts depicts the employment trends for A/E/C firms, based upon data from the US Bureau of Labor Statistics. All three data sets demonstrate healthy growth over the past year, although architectural employment, as well as engineering and drafting employment, both depict summer peaks and autumn declines. This is typical of prior years.
Architectural employment in July hit its highest number since November 2008. Likewise, engineering employment hit a new peak in August. Construction employment has not seen the autumn decline of architecture/engineering, and October data shows the highest employment figure since April 2008.
Please note that the figures for September and October 2018 are preliminary.
Confidence & Momentum
Consumer Confidence in the United States, as tracked by The Conference Board, reached an 18-year high in October 2018 with a 2.6 point increase over September.
There’s also an industry-specific confidence metric, published by Associated Builders and Contractors and known as the ABC Construction Confidence Index (CCI). The ABC index is broken into Sales Expectations and Profit Margin (as well as Staffing Levels), and is a quarterly metric. Second quarter data from 2018 was released in late September, and is the most current period available. Like the AIA’s ABI, the data utilizes a diffusion index, with any score above 50.0 demonstrating an increase over the prior period. Survey participants are asked about their expectations for the forthcoming six months.
The CCI for Sales Expectations climbed to 72.6 in the second quarter, up from an already-impressive 72.2. Likewise, the CCI for Profit Margin climbed to 64.5, up from 63.4 in the first quarter. The CCI for Staffing Levels (not shown) fell back slightly, from 70.2 to 69.5, but this figure is still historically high according to ABC.
Another relevant metric is published by Dodge Data & Analytics, known as the Dodge Momentum Index. The index is published monthly and the prior month is often revised at the same time. Dodge further breaks the data into Commercial Building and Institutional Building.
The overall figure for September demonstrates a decline of 2.6% in the index, with Commercial Buildings down 4.3% and Institutional Buildings down 0.1%. This was the second straight month of decline, although the third quarter figure is up from the second quarter. Because the index tracks the first, or initial, report of a nonresidential construction project in the planning stage, a handful of large projects can influence the index from month-to-month. Overall, the trend for the year is still positive. For benchmarking, the year of 2000 represents a Momentum Index reading of 100. This index is an indicator of future construction.
Spending, Backlog & More
Construction Put in Place is a data set published monthly by the US Census Bureau. Although it is a lagging indicator – construction has occurred – it is a useful metric for trending, and also provides a way to analyze the activity in 16 market sectors.
The data is reported two ways; first, the current month is compared with the prior month. Second, the current month is compared with the same month the prior year. For this report, I’m using the year-over-year comparison, which demonstrates that 14 of 16 markets have experienced growth over the past 12 months.
Only Communications and Religious facilities saw declines over a year ago. Furthermore, seven sectors saw double-digit growth in September 2018, compared with September 2017.
Overall, the metric is showing an 8.9% increase in Construction Put in Place compared with a year ago. Water Supply, Conservation & Development, Transportation, and Lodging were the biggest gainers, while Commercial, Manufacturing, and Health Care saw the smallest levels of growth. This data demonstrates an increase in infrastructure construction – something that has been talked about for years.
Another metric reported by the US Census Bureau is US Nonresidential Construction Spending, and again it is compared against the previous month as well as 12 months prior. Although the data shows a decrease in construction spending from August 2018 to September 2018, there is significant growth over September 2017.
In addition to the Construction Confidence Index, ABC also publishes a quarterly Construction Backlog Indicator, broken into regions and project types. The columns on this chart demonstrate the average backlogs in months, while the circles depict variances from the previous quarter, in percent.
The average backlog is now 9.9 months, which is a new high for this index. Note that this data is for the second quarter, which is the most current data available. This is also an increase of 12.2% over the previous quarter.
Broken into regions, firms in the South are experiencing the largest backlog levels, slightly more than 11 months. The Middle States region tracked by ABC is the only geographic area not seeing double-digit backlog figures, and also the only region to see a decline, although slight, over the prior quarter.
Firms operating in all three market sectors tracked by ABC experienced growth in backlogs, with both Commercial/Institutional and Infrastructure firms seeing backlogs of just over 10 months. Firms operating in the Heavy Industrial sector report backlog averages of 7.8 months; however, this is a jump of 33% over the prior quarter.
One final metric tracked in this report is open US Construction Sector Jobs, based upon data from multiple sources including the US Bureau of Labor Statistics. The figure for August 2018 – the most current available – was 298,000 open jobs, significantly up from the 215,000 figure of August 2017. This trend is not new, although it appears to be picking up speed as construction firms across the country continue to struggle with finding qualified employees. In addition to negatively impacting construction firms’ ability to pursue and deliver projects, the worker shortage also appears to be leading to increased wages, potentially driving inflation growth in construction costs. Stay tuned to see what impact this trend will have on the A/E/C industry.
There’s our latest A/E/C environmental scan. Are there other metrics that you regularly track?
Are you pulling together your strategic and marketing plans for 2019? Need help with planning or facilitation? Contact me at 717-434-1543 or sbutcher@aecumen.com to discuss how aecumen can help position your firm for a successful year (and beyond)!
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