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Architecture billings plummet

Construction is underway on July 29 on the Hyatt House extended-stay hotel at 315 First Ave., Rochester, Minnesota. Sluggish U.S. architecture billings are giving rise to concerns about future construction activity, but Minnesota market watchers don’t expect a severe downturn soon. (File photo by Bill Klotz)

Construction is underway on July 29 on the Hyatt House extended-stay hotel at 315 First Ave., Rochester, Minnesota. Sluggish U.S. architecture billings are giving rise to concerns about future construction activity, but Minnesota market watchers don’t expect a severe downturn soon. (File photo by Bill Klotz)

By BRIAN JOHNSON
BridgeTower Media Newswires

Another sluggish month for U.S. architecture billings is stoking fears of a slowdown in future design and construction activity, but local market watchers don’t expect the bottom to fall out anytime soon.

The American Institute of Architects said Wednesday that demand for design services “took a markedly downward swing” in August. That came on the heels of six months of “disappointing growth” in billings, said Kermit Baker, AIA chief economist.

AIA’s Architecture Billings Index slipped to 47.1 in August. Any reading below 50 indicates a decrease in billings. The Midwest had the lowest regional score, 46.4, and the West had the highest, 51.2.

Among sectors, institutional (50.6) and multifamily residential (50.5) were barely in optimist territory, whereas commercial industrial (46.9) and “mixed-practice” registered slightly pessimistic readings, according to AIA.

The recent trends suggest that the “design expansion that began in mid-2012 is beginning to face headwinds,” Baker said in a statement.

“Currently, the weakness is centered at firms specializing in commercial/industrial facilities as well as those located in the Midwest,” Baker said. “However, there are fewer pockets of strength in design activity now, either by building sector or region, than there have been in recent years.”

In St. Paul, Minnesota, representative of the architectural firm BWBR said they don’t place much stock in the declining index because it “often doesn’t reflect what we specifically are feeling.”

That said, several projects “have either slid out or slowed down or delayed starting, which might suggest a pattern that is making us cautious about any aggressive hiring. Our workload still looks strong as we get to year end and into 2020, but it’s too early to see if that is real or not,” said Pete Smith, chief executive of BWBR.

Rick Carter, CEO of LHB Architects and Engineers, said his firm continues to enjoy a large backlog of work.

From an industry perspective, “there is certainly a lot of discussion about a potential recession in 2020, but mostly optimism about the present and short-term future,” Carter said.

According to a survey of AIA member firms, the Architecture Billings Index offers a nine- to 12-month glimpse into the future of nonresidential-construction spending, according to AIA.

A separate report released on Tuesday also warns of a slowdown in nonresidential construction. Construction spending softened in the second quarter of 2019 as the economy “signals confusion and indecisiveness,” according to the Marcum Commercial Construction Index.

Nonresidential-construction spending declined 1.8 percent in June but is up 2.3 percent year-over-year, the Marcum report noted.

Joseph Natarelli, Marcum’s national construction leader, said in a statement that “warning signs and historical trends of downturn are out there and have been for a little while.”

“The construction industry, always the first to feel the pinch and last to be relieved of it, saw some minor downturns this June,” he added. “Jobs are plenty, unemployment is slow, but nonresidential spending hasn’t grown over the past year and that includes the increases we saw in governmental and infrastructure spending. For now, we are advising our clients to take a skeptical and informed eye to the future.”

Also this week, the Associated Builders and Contractors reported that its Construction Backlog Indicator fell to 8.5 months in July, down 2.9% from June.

Backlog levels generally “remain consistent with healthy construction activity over the near-term,” said Anirban Basu, ABC chief economist, in a statement.

“Contractors collectively expect rising sales to continue and are planning to add to staffing levels, though their exuberance has been somewhat tempered in recent months,” Basu said. “If the U.S. economy continues to soften, including in the nation’s manufacturing industry, contractor confidence levels will likely continue to subside along with backlog. Yet, for now, the nation’s nonresidential construction segment remains busy.”

Copyright 2019 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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