It’s Time to be Diversified

With all my talk of economics lately, I thought I’d share a recent report on the state of the architecture industry. According to the AIA, the Architecture Billings Index (ABI) is down to its lowest levels since 2001. If your firm is diversified, however, you might not need to panic just yet. There are still some strong sectors out there.

Courtesy of Shannon Burns.

So, what exactly does the ABI mean?

The Architecture Billings Index is derived from a monthly “Work-on-the-Boards” survey and produced by the AIA Economics & Market Research Group. Based on a comparison of data compiled since the survey’s inception in 1995 with figures from the Department of Commerce on Construction Put in Place, the findings amount to a leading economic indicator that provides an approximately nine to twelve month glimpse into the future of nonresidential construction activity. The diffusion indexes contained in the full report are derived from a monthly survey sent to a panel of AIA member-owned firms. Participants are asked whether their 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.

-AIA

To place this in perspective, we started the year with an ABI of 50.7. This month registered a 41.8, a 9 point drop and the lowest mark since October of 2001. A mark over 50 indicates an increase in billings, so this signifies a dramatic decrease.

However, when you look at the regional and sector breakdown, it’s not all gloom and doom.

Regional ABI

• Northeast - 51.5
• South - 48.3
• West - 46.3
• Midwest - 42.6

Sector ABI

• Institutional - 54.9
• Multi-family residential - 46.6
• Mixed-use - 43.9
• Commercial/Industrial - 40.6

When you break it down in this manner, it actually paints a positive picture for the Northeast and institutional sector. My guess is that the other regions have been more adversely affected by the housing crisis than the Northeast. Firms in the South, West, and Midwest are likely to experience some tough times over the course of the next year or two. Unless, of course, they are diversified, which can be tough for smaller firms.

If you are well diversified, then you are likely in this group as quoted by AIA chief economist Kermit Baker.

Interestingly enough, we have also had some survey members reporting that their business is in great shape from a billings and demand standpoint. The one bright spot continues to be the institutional sector with continued positive conditions for construction projects such as schools, hospitals and government buildings.

If I were to speculate, I would say this is resulting from being in a period of enormous flux. Economists, financial analysts, you, and me alike are all uncertain as to whether we are entering a recession. The market is up 400 one day, only to drop 200 the next. Then it’s back up another 200, only to drop 400. It’s quite confusing, really. Many corporations are probably being forced to delay certain financial decisions, specifically one as large as financing new construction. This is especially true for the financial industry which is experiencing major fallout right now. Their first priority is gaining back the trust, and then moving back into the black.

In the meantime, piggy back on the industries where money will always be spent recession or expansion - government, healthcare, and education. Consider it like playing defensive in the stock market.

Article
Architects’ Billings Sharply Down in 2008, Business Week

Press Release
Architecture Billings Index Points to Major Downturn in Commercial Construction, AIA

If you enjoyed this post, please leave a comment or subscribe to the feed and get future articles delivered to your feed reader.

Powered by Wordpress | WP Premium theme by WP Remix
Copyright 2007. agents of urbanism. All rights reserved

• Home
• About
• Archives
• Glossary
• Poll Archive
• Sitemap