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ABI March 2023: Business Conditions Improve Slightly

Business conditions at architecture firms saw a slight improvement in March, following declining billings during the last five months. The AIA/Deltek Architecture Billings Index score of 50.4 for the month indicates that a slight majority of firms reported an increase in their firm billings this month. March was the first time since last September in which billings improved.


The billings score for March increased from 48.0 in February to 50.4 in March (any score above 50 indicates an increase in firm billings). However, firms reported that inquiries into new projects grew at a slower pace, while the value of new design contracts declined from 51.3 in February to 48.9 in March.


“In spite of the positive movement in architecture firm billings in March, core concerns remain., “said AIA Chief Economist, Kermit Baker, Hon. AIA, Ph.D. “Inflation still needs to ease further for interest rates to return to more normal levels, and the banking turmoil still threatens to hold back residential and commercial construction loans.”


Backlogs at architecture firms ticked back up to an average of 6.9 months in the first quarter of 2023, after declining slightly in the fourth quarter of 2022. However, the pace of growth of inquiries into new projects at firms slowed in March, while the value of new design contracts declined for the first time in four months. This likely reflects the ongoing concern among clients about committing to new projects due to lingering uncertainty about interest rates and inflation.


Billings continued to decline at firms in most regions of the country in March, with only those firms located in the Midwest continuing to report growth, as has been the case for the last five months. Business conditions also remained soft at firms of all specializations, as firms with a multifamily residential specialization saw conditions weaken to the lowest level since the early days of the pandemic. Only firms with a mixed specialization, meaning that they do not receive a majority of their billings from any one category, continued to report billings growth.


In the broader economy, there continue to be generally positive signs of growth, despite some ongoing uncertainty. Nonfarm payroll employment continued to rise in March, adding 236,000 new positions for total growth of 1,034,000 in the first quarter of the year. Architecture services employment increased by 400 positions in February, the most recent data available, nearly offsetting the industry’s losses from January. Overall, though, employment in the sector has been essentially flat since last November, with only small fluctuations from month to month.


Inflation continued to moderate in March as well, with the Consumer Price Index rising by just 0.1% from February. However, inflation remains relatively high on average, at 5.0% higher than the level it was at one year ago. While energy prices declined and food prices remained stable this month, shelter prices increased 0.6% from February and are currently up by 8.2% from last year. Despite these signs of moderation, the Federal Reserve is projected to raise interest rates by another 0.25% at their next meeting in early May, although experts predict that they may pause at the 5.0%–5.25% level after that, to see if that leads to greater moderation in inflation.


Key ABI highlights for March include the following:

  • Regional averages: Midwest (51.4); Northeast (49.1); South (47.4); West (47.2)

  • Sector index breakdown: mixed practice (firms that do not have at least half of their billings in any one other category) (53.9); institutional (48.8); commercial/industrial (49.7); multifamily residential (44.2)


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