Architecture firms continued to report strong business conditions in May, despite increasing headwinds in the economy. While the Architecture Billings Index score of 53.5 for the month means that fewer firms reported an increase in billings in May than in April (when the score was 56.5), the majority of firms reported billings growth for the 16th consecutive month. In addition, both inquiries into new projects and the value of new design contracts ticked up this month, indicating that there is still both strong interest in new projects and a substantial number of projects in the pipeline for which contracts have already been signed.
Business conditions also improved at firms in all regions of the country for the second consecutive month in May, with firms in the Northeast continuing to report modest growth after seven straight months of declining billings. Business conditions remained strongest at firms located in the West, followed by firms located in the Midwest. By firm specialization, while billings continued to increase at a steady clip at firms with a multifamily residential specialization, the pace of growth has slowed somewhat in recent months. Firms with a commercial/industrial specialization are still seeing the strongest conditions overall, as has been the case for much of the last year, while billings growth remained more modest at firms with an institutional specialization.
In the larger economy, inflation remains a critical issue. The Consumer Price Index, a measure of inflation, increase by 1% in May, and has now increased by 8.6% from one year ago. Gas prices alone increased by 4.1% this month, while grocery prices increased by 1.4%. In addition, core services inflation increased as well in May, most notably in airfares, which have now increased by 36.8% from one year ago, with the majority of those increases coming in the last few months. In an attempt to manage this rising inflation, the Federal Reserve raised interest rates by a whopping 0.75% on June 15, the largest increase in nearly 30 years. This comes on the heels of an increase of 0.5% in May, and all signs point to more increases later this year.
Nonfarm payroll employment continued to rise at a steady pace in May, as 390,000 new jobs were added. Total nonfarm payroll employment is now just 0.5% below its pre-pandemic peak, and the ongoing tightness in the labor market means that it should surpass that level soon. Architecture services employment data lags national employment data by a month, and in April, the industry actually declined by 400 employees. In fact, employment in the sector has generally been flat since January, when 2,000 new jobs were added.
