Design Billings: Continuing Trend of Decreasing Demand

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THE MOST RECENT REPORT: NOVEMBER 15, 2023

Commercial and multifamily sectors hit hard in October 2023 ABI report

WASHINGTON – The AIA Architecture Billings Index (ABI) reports that business conditions at architecture firms continued to soften in October. For the third consecutive month, the ABI score was under 50, indicating that a significant share of firms is seeing a decline in billings.

“This report indicates not only a decrease in billings at firms, but also a reduction in the number of clients exploring and committing to new projects, which could potentially impact future billings. The soft conditions were evident across the entire country as well as across all major nonresidential building sectors,” said Kermit Baker, PhD, AIA Chief Economist.

The score of 44.3 for October dipped slightly below the score of 44.8 in September. Billings were universally soft across the entire country in October, with firms located in the West and Northeast continuing to report the softest conditions overall for the second month in a row.

Key ABI highlights for October include:

Regional averages: Northeast (42.1); South (48.5); Midwest (48.9); West (40.0)
Sector index breakdown: commercial/industrial (43.7); institutional (49.1); mixed practice (firms that do not have at least half of their billings in any one other category) (44.0); multifamily residential (40.1)
Project inquiries index: 48.8
Design contracts index: 46.5

Institutional Sector Resilience: The Institutional sector displayed a notable resilience in recent months. In October 2023, the sector's index was 49.1, indicating a slight decrease in billings compared to previous months. However, this sector has generally maintained a more stable performance, especially when compared to the volatility observed in other sectors like Multifamily and Commercial/Industrial.

Multifamily Sector Decline: The Multifamily sector showed a significant decline in the latest month, with an index score of 40.1, which is its lowest in the provided period. This indicates a substantial decrease in billings and suggests a downturn in this sector, which could be due to various market factors such as changes in housing demand or economic conditions.

Geographical Variances: Geographically, the Northeast region reported a notable decrease in its index to 42.1 in October 2023, suggesting a contraction in billings. This decline might be indicative of regional economic challenges or shifts in construction activity within this area.

Overall Downward Trend: Observing the National ABI, there's a noticeable downward trend in recent months, with the index dropping to 44.3 in October 2023. This suggests a decrease in architecture billings across the board, signaling a potential slowdown in the construction industry or broader economic headwinds.

Commercial/Industrial Sector Fluctuations: The Commercial/Industrial sector has experienced fluctuations over the observed period, with a recent downturn to 43.7 in October 2023. This could reflect changing market dynamics or shifts in commercial real estate demand, impacting the construction activity in this sector.

The ABI score is a leading economic indicator of construction activity, providing an approximately nine-to-twelve-month glimpse into the future of nonresidential construction spending activity. The score is derived from a monthly survey of architecture firms that measures the change in the billings from the previous month.

The regional and sector categories are calculated as three-month moving averages and may not always average out to the national score.

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Interpreting the ABI:

The Architecture Billings Index (ABI) is a leading economic indicator of construction activity. It is produced by the American Institute of Architects (AIA) and it reflects the approximate nine-to-twelve month lead time between architecture billings and construction spending.

The ABI is based on a monthly survey of architecture firms that asks respondents to rate the level of their billings (or the amount of new design contracts) as either "increase," "decrease," or "no change" from the previous month. The results are then compiled into an index, where a score above 50 indicates an increase in billings, and a score below 50 indicates a decrease in billings.

The ABI is widely used in the construction industry, as well as by economists and analysts, to track the health of the construction market and to forecast future building activity. It is considered a leading economic indicator because changes in architecture billings often precede changes in overall economic activity, such as employment and GDP.

The ABI provides a snapshot of the demand for design services as well as an indication of the near-term outlook for the construction industry.

The survey panel asks participating architectural firms whether billings increased, decreased or stayed the same in the month that just ended. According to the proportion of respondents choosing each option, a score is generated, which represents an index value for each month.

An index score of 50 indicates no change in firm billings versus the previous month.
A score above 50 indicates an increase in firm billings versus the previous month.
A score below 50 indicates an decrease in firm billings versus the previous month.
NOTE: Index numbers cited for the last three reported months are preliminary.
The regional and sector categories are calculated as a 3-month moving average, whereas the national index, design contracts and inquiries are monthly numbers.

Source: The American Institute of Architects (AIA)