Environmental Scan Archives - JDB Engineering, Inc.

Nov 07 2018

The State of the A/E/C Industry

What are the current economic conditions within the architecture, engineering, and construction industry? How are the market sectors and geographic regions performing?

There are quite a few indicators that track the health of the industry, and we’ve gathered many of the major metrics in one place to make your environmental scanning easy as you head into planning for 2019!

Click on the image to enlarge the State of the A/E/C Industry infographic, or surf here for a downloadable PDF for sharing!

Architectural Billings

The first stop on this tour of the A/E/C industry’s economic health is the American Institute of Architects’ Architectural Billings Index (ABI), which is broken into several categories. Overall, the ABI for billings is at 51.1 for the latest month. As the ABI is a diffusion index, any score above 50.0 demonstrates growth over the prior month, while any score below indicates decline. The most current data available is for September 2018, and the score of 51.1 demonstrates a billings increase over August. However, the August score was 54.2, so we know that although the billings continue to increase, there is a decreasing rate of growth.

The AIA tracks Design Contracts and Project Inquiries as well. While billings is a lagging indicator – that is, the work has already happened – Design Contracts are very much a real-time indicator, capturing what is happening right now. In August, there was a retraction in contracts with a score of 49.6. However, the index rebounded in September with a score of 54.1, a significant jump. Project Inquiries is a leading indicator of future workload. The September score of 58.8 is impressive, building upon the 58.0 score of the prior month.

Additionally, with the latest ABI survey, the AIA asked architects about revenues for the year, and as an average, AIA members are projecting a net revenue growth of 7.5% for the year.

The ABI is also broken into four large geographic regions. Three of the four experienced billings growth in September:

Midwest = 59.7 (52.5 in August)
West = 51.3 (54.2 in August)
South = 54.1 (57.0 in August)

The Midwest experienced a major increase in growth, while the West and South both reported slowing growth. However, the Northeast did not fare as well, seeing a steeper decline in billings than it had the prior month:

Northeast = 46.6 (46.9 in August)

In addition to geographic regions, the ABI is also broken into major market sectors as follows:

Commercial/Industrial = 50.8 (53.6 in August)
Institutional = 55.1 (52.3 in August)
Residential = 54.9 (55.6 in August)

All markets experienced an increase in billings in September, although the growth in Commercial/Industrial as well as Residential billings slowed compared to the August data.

A/E/C Employment Trends

The next series of charts depicts the employment trends for A/E/C firms, based upon data from the US Bureau of Labor Statistics. All three data sets demonstrate healthy growth over the past year, although architectural employment, as well as engineering and drafting employment, both depict summer peaks and autumn declines. This is typical of prior years.

Architectural employment in July hit its highest number since November 2008. Likewise, engineering employment hit a new peak in August. Construction employment has not seen the autumn decline of architecture/engineering, and October data shows the highest employment figure since April 2008.

Please note that the figures for September and October 2018 are preliminary.

Confidence & Momentum

Consumer Confidence in the United States, as tracked by The Conference Board, reached an 18-year high in October 2018 with a 2.6 point increase over September.

There’s also an industry-specific confidence metric, published by Associated Builders and Contractors and known as the ABC Construction Confidence Index (CCI). The ABC index is broken into Sales Expectations and Profit Margin (as well as Staffing Levels), and is a quarterly metric. Second quarter data from 2018 was released in late September, and is the most current period available. Like the AIA’s ABI, the data utilizes a diffusion index, with any score above 50.0 demonstrating an increase over the prior period. Survey participants are asked about their expectations for the forthcoming six months.

The CCI for Sales Expectations climbed to 72.6 in the second quarter, up from an already-impressive 72.2. Likewise, the CCI for Profit Margin climbed to 64.5, up from 63.4 in the first quarter. The CCI for Staffing Levels (not shown) fell back slightly, from 70.2 to 69.5, but this figure is still historically high according to ABC.

Another relevant metric is published by Dodge Data & Analytics, known as the Dodge Momentum Index. The index is published monthly and the prior month is often revised at the same time. Dodge further breaks the data into Commercial Building and Institutional Building.

The overall figure for September demonstrates a decline of 2.6% in the index, with Commercial Buildings down 4.3% and Institutional Buildings down 0.1%. This was the second straight month of decline, although the third quarter figure is up from the second quarter. Because the index tracks the first, or initial, report of a nonresidential construction project in the planning stage, a handful of large projects can influence the index from month-to-month. Overall, the trend for the year is still positive. For benchmarking, the year of 2000 represents a Momentum Index reading of 100. This index is an indicator of future construction.

Spending, Backlog & More

Construction Put in Place is a data set published monthly by the US Census Bureau. Although it is a lagging indicator – construction has occurred – it is a useful metric for trending, and also provides a way to analyze the activity in 16 market sectors.

The data is reported two ways; first, the current month is compared with the prior month. Second, the current month is compared with the same month the prior year. For this report, I’m using the year-over-year comparison, which demonstrates that 14 of 16 markets have experienced growth over the past 12 months.

Only Communications and Religious facilities saw declines over a year ago. Furthermore, seven sectors saw double-digit growth in September 2018, compared with September 2017.

Overall, the metric is showing an 8.9% increase in Construction Put in Place compared with a year ago. Water Supply, Conservation & Development, Transportation, and Lodging were the biggest gainers, while Commercial, Manufacturing, and Health Care saw the smallest levels of growth. This data demonstrates an increase in infrastructure construction – something that has been talked about for years.

Another metric reported by the US Census Bureau is US Nonresidential Construction Spending, and again it is compared against the previous month as well as 12 months prior. Although the data shows a decrease in construction spending from August 2018 to September 2018, there is significant growth over September 2017.

In addition to the Construction Confidence Index, ABC also publishes a quarterly Construction Backlog Indicator, broken into regions and project types. The columns on this chart demonstrate the average backlogs in months, while the circles depict variances from the previous quarter, in percent.

The average backlog is now 9.9 months, which is a new high for this index. Note that this data is for the second quarter, which is the most current data available. This is also an increase of 12.2% over the previous quarter.

Broken into regions, firms in the South are experiencing the largest backlog levels, slightly more than 11 months. The Middle States region tracked by ABC is the only geographic area not seeing double-digit backlog figures, and also the only region to see a decline, although slight, over the prior quarter.

Firms operating in all three market sectors tracked by ABC experienced growth in backlogs, with both Commercial/Institutional and Infrastructure firms seeing backlogs of just over 10 months. Firms operating in the Heavy Industrial sector report backlog averages of 7.8 months; however, this is a jump of 33% over the prior quarter.

One final metric tracked in this report is open US Construction Sector Jobs, based upon data from multiple sources including the US Bureau of Labor Statistics. The figure for August 2018 – the most current available – was 298,000 open jobs, significantly up from the 215,000 figure of August 2017. This trend is not new, although it appears to be picking up speed as construction firms across the country continue to struggle with finding qualified employees. In addition to negatively impacting construction firms’ ability to pursue and deliver projects, the worker shortage also appears to be leading to increased wages, potentially driving inflation growth in construction costs. Stay tuned to see what impact this trend will have on the A/E/C industry.

There’s our latest A/E/C environmental scan. Are there other metrics that you regularly track?

Are you pulling together your strategic and marketing plans for 2019? Need help with planning or facilitation? Contact me at 717-434-1543 or sbutcher@jdbe.com to discuss how jdbIQity can help position your firm for a successful year (and beyond)!

Connect with Scott

LinkedIn: https://www.linkedin.com/in/scottdbutcher
Twitter: https://twitter.com/scottdbutcher

May 11 2018

May 2018 A/E/C Environmental Scan

by Scott D. Butcher, FSMPS, CPSM

What’s happening in the architecture, engineering, and construction (A/E/C) industry right now? Firms should always be paying attention to the industry indicators, whether those metrics are leading or lagging. Below you’ll find a current snapshot of some of the best-known metrics in our industry.

American Institute of Architects

The most recent data from the American Institute of Architects’ Architecture Billings Index (ABI) shows that in general, the outlook continues to be positive. The AIA uses a diffusion index, meaning any score above 50.0 signifies an increase over the prior period (in this case, the prior month), while any score under 50.0 demonstrates a decrease.

The March data, released a few weeks ago, reveals an overall ABI of 51.0, signifying an increase in architectural billings. The ABI is a leading indicator for the construction industry, providing a glimpse into the work environment for contractors nine to twelve months into the future. However, last month the index scored a 52.0, meaning that this month’s increase was not as much as last month’s. Architectural billings have increased six consecutive months, a positive indicator of the health of the design industry.

The AIA also maintains a Project Inquiries Index, which is an indicator of project opportunities, and thus a predictor of future design workload – as well as construction workload further into the future. In March, the index scored a 58.1, demonstrating a continued high level of interest in design services – which will hopefully convert to design contracts and architectural billings.

Finally, the AIA has a Design Contracts Index, which captures new contracts at architectural firms. The most recent score was 51.5, indicating that design firms are reporting an overall increase in contracts over last month. However, last month’s score was 54.5, so the March increase was not as significant as February’s.

The Architectural Billings Index is further broken into four geographic regions, and each receive scores on a diffusion index as well.

Three of the four regions within the ABI demonstrated growth in March, with the West and South seeing the largest increases. The Northeast, however, saw a decline in architectural billings. Last month, the Northeast scored 47.5, so this month’s decline was not as large, but a decline over the prior month nonetheless.

The AIA also breaks out architectural billings by four market sectors: multi-family residential, institutional, commercial/industrial, and mixed practice.

Architectural firms specializing in the institutional market sector experienced a slight decline in billings in March. Otherwise, firms practicing in all other sectors experienced an increase in billings.

Dodge Momentum Index

Another indicator of activity in the design and construction industry is the Dodge Momentum Index, which incorporates nonresidential project information. When a project is first reported and captured in the Dodge database, it is tracked via the index. As such, it can be a leading indicator for both design and construction, although some projects never come to fruition and others do so over a period of years.

The Dodge Momentum Index uses 2000 as a base year, with a score of 100. The score for April 2018 was 163.0, an increase of 6.1% over the March figure. The index is further broken down into two categories. The latest data reveals increases of 6.3% for the Commercial Building Index and 5.8% for the Institutional Building Index, indicating positive growth in planned projects in both sectors.

Construction Employment

Although construction employment is a lagging indicator for architecture and engineering firms, it is a gage of health within the construction industry. Information is provided monthly by the U.S. Bureau of Labor Statistics. For April 2018, the BLS reported an increase of 17,000 net new jobs in the construction industry, including 9,000 for nonresidential construction – most of that from specialty trade contractors.

Related to that is the unemployment rate. Nationally, the rate stands at 3.9%, although within the construction industry it is currently 6.5%, lagging behind the national economy.

ABC Construction Confidence Index

Associated Builders & Contractors (ABC) provides several indices to track the health of the construction industry. The ABC Construction Confidence Index (CCI) has three components: CCI for Sales Expectations, CCI for Profit Margin, and CCI for Staffing Levels. These metrics are published twice a year, and the most recent data was released in April 2018.

According to this survey, contractors are bullish on 2018. Like the ABI, the CCI is tracked using a diffusion index, with 50.0 representing no change, scores above 50.0 representing increases in confidence over the previous period, and scores below 50.0 representing decreases in confidence over the previous period.

The April data shows a CCI for Sales Expectations score of 67.1, up from 66.4 in the prior period. The CCI for Profit Margin was also very strong, scoring a 60.7; however, the confidence increase was not as robust as the prior period, which saw a score of 62.4. The CCI for Staffing Levels score was also very strong, coming in at 65.1 – but not as high as the 66.1 score from the prior period.

ABC further breaks responses into Up Big, Up Small, No Change, Down Small, and Down Big, which can be viewed here.

ABC Construction Backlog Indicator

Another useful indicator published by Associated Builders and Contractors is the Construction Backlog Indicator, a quarterly metric.

The most recent information was released on March 19, and indicates growth in construction backlog for the final quarter of 2017. Overall, the CBI came in at 9.67 months, which is the highest level since ABC has been publishing this metric.

ABC also segments the data by geographic region and a handful of market sectors. Based upon the most current report, contractors in the South and Northeast have the largest backlogs – both regions have a CBI of more than 10 months. Here’s the geographic breakout:

Northeast = 10.36 months, an increase of 1.5% over the prior quarter
South = 10.99 months, a decrease of 2.9% over the prior quarter
Middle States = 8.33 months, a jump of 9.5% over the prior quarter
West = 6.97 months, an increase of 5.4% over the prior quarter

Three market sectors are tracked within the CBI, including Commercial/Institutional, Heavy Industrial, and Infrastructure. Within these segments, Commercial/Industrial saw growth, Heavy Industrial experienced decline, and Infrastructure remained essentially unchanged:

Commercial/Institutional = 10.07 months, an increase of 8.2% over the prior quarter
Heavy Industrial = 5.17 months, a decline of 5.2% over the prior quarter
Infrastructure = 12.55 months, a very modest increase of 0.1% over the prior quarter

Construction Spending

One final metric in this environmental scan is Construction Put in Place, an indicator published by the U.S. Census Bureau. It is a lagging indicator that represents completed construction projects, but does provide a window into the health of the construction industry. It also tracks 16 nonresidential market sectors, providing a deeper dive than the other indices.

The most recent data is from March 2018, and has a seasonally-adjusted figure of $1,284.7 billion of construction put in place, a decline of 1.7% over the prior month. However, the nonresidential component of the data saw a smaller decline, down only 0.3% from the prior month.

The graphic above is specific to private, nonresidential construction. Public construction put-in-place was unchanged from the prior month.

So there’s a quick overview of the health of the architectural, engineering, and construction industry. When conducting an environmental scan and looking at the data, it’s important to remember that a single data point – whether a snapshot of a month or a quarter – is only a small piece of a big picture. For instance, with the Dodge Momentum Index, a single megaproject can greatly impact the score the month it hits – and can lead to a decline in score the following month unless there’s another megaproject announced in its place. It’s more important to follow the trends from period-to-period to get an accurate gauge of industry activity and health.

What are some of the metrics you follow for your environmental scans? What are other important A/E/C metrics not covered here?

Connect with Scott

LinkedIn: https://www.linkedin.com/in/scottdbutcher
Twitter: https://twitter.com/scottdbutcher

The State of the A/E/C Industry

Architectural Billings

A/E/C Employment Trends

Confidence & Momentum

Spending, Backlog & More

Connect with Scott

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May 2018 A/E/C Environmental Scan

American Institute of Architects

Dodge Momentum Index

Construction Employment

ABC Construction Confidence Index

ABC Construction Backlog Indicator

Construction Spending

Connect with Scott

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