TZL 933

THE ZWEIG LETTER | OCTOBER 31, 2011, ISSUE 933

T R E N D S

Volatile ABI equals lagging recovery

Industry leaders are looking for direction as some markets recover more quickly than others. By Julie Kyle Editor T he wild swings of the Architec- ture Billings Index and a collec- tive downcast mood among econo- mists means the A/E/P and environ- mental consulting industry’s suffering isn’t over yet. September’s ABI numbers reflect an- other drop in work after a high point in August. Many in the industry are not surprised by such swings.

just more competitiveness.” In such a highly competitive market, many firms have reduced fees, which Harrison feels may be another explana- tion for the low ABI readings. “You may be getting the work, but at a lower fee. So, the quarter-on-quarter billings are not that much better, if better at all.” Debra Lupton, CEO at TLC Engi- neering for Architecture (Orlando, FL), a 286-person firm, uses informa- tion reflected in the ABI as one of many sources of information on the econo- my. “As a predictor, it is far more valu- able to the CM/GC side, as our new contracts provide a leading indicator of work in the pipeline for construction.” Lupton says she typically views the ABI as a verification of what TLC expe- riences in the marketplace. “Our gen- eral shifts have coincided with the up- and-down swings,” she says. “I would like to see AIA provide mem- bership with data reflecting the future demand for design in various markets versus the put-in-place construction information, which is rearview mirror,” Lupton says. Vertical market analysis would be very helpful to position for the future, she says. “However, the AIA’s economic pro- grams do help us in understanding the factors that impact the economy and the statistics of design and construc- tion as a subset.” Baskervill submits to the ABI for peer comparison, not as a forecasting tool, says Robert Clark, president of the Richmond, Va.-based, 93-person architecture, engineering and design firm. “It seems to be relevant. But it is also backwards-looking. I think the ABI is more meaningful to those outside the A/E industry who view us as an eco- nomic indicator,” he says. Fred Kramer, president of ADD Inc. (Cambridge, MA), a 160-person archi- tecture and engineering firm, looks at the ABI frequently to simply raise con- sciousness and for a national overview, but not for regional activity. “In other words, if they polled Boston for a local ABI, it would be significantly higher! In Detroit, perhaps significant- ly lower,” he says. “It’s also not prod- uct-specific related to diverse markets – never mind diverse geographies.”

in four months, the ABI reversed direc- tion again in September to 46.9, drop- ping from a score of 51.4 in August. Industry speaks on ABI’s swings. Phil Harrison, CEO of Perkins+Will (Chicago, IL), a

1,532-person architec- tural, urban, and inte- rior design firm, feels business has been “me- diocre” for about the last two years.

“It’s stable. It’s not horrible, but it’s not getting better, either,” he says. “I think there’s a general dysfunction or malaise, where peo- ple are looking at inter- national, global news and what’s going on in Washington, and I think there remains a lack of confidence and hesitancy in decision making, in gen- eral.” Perkins+Will has experienced many stops and starts, which illustrate this lack of confidence, Harrison says. “Even projects on the books, planned by all types of clients, are frequently stopped for a variety of reasons, then, they re- start. It’s a difficult thing to manage from a staffing standpoint.” RFPs are active, and Harrison believes the ABI reflects this. “The new inquiries – it’s bounced around a lot, but it’s generally quite a bit higher than the work,” he says. “If you look at the billings index, the spread between inquiries and billings has increased. There are relatively high inquiries relative to billings, which, to me, I read that to say there’s more com- petitiveness. More firms are pursuing more projects, so where you would nor- mally compete against five or six firms for projects, you’re competing against 15 or 20 now. I think people are quite hungry and pursuing more work than they normally would. So it takes lon- ger to make selections, because clients are reviewing 15 proposals, opposed to three or five. That’s part of the reason. Therefore, firms have perceptions of more opportunity; but in fact, there’s Phil Harrison, CEO, Perkins+Will.

“Firms have perceptions of more opportunity; but in fact, there’s just more competitiveness.”

Sector economists from the Ameri- can Institute of Architects, the Asso- ciated General Contractors of America and Reed Construction Data who as- sembled during a webcast titled “Up, Down, or Flat? Where’s Construction Headed?” are not predicting a recovery in construction just yet. “Recovery is a process, not an event,” said Kermit Baker, chief economist for the AIA. Although some markets are exuding a little strength, the nation has not seen a true housing recovery get underway yet. Total construction spending is al- ready recovering and will improve next year, said Bernard Markstein, chief economist, RCD. Residential construc- tion is holding its own at a low level and will only recover slowly. Nonresidential construction building will strengthen throughout 2012 and 2013. An increase in the availability of fi- nancing could fast track numerous projects, Baker said. Most firms (69 percent) report stalled projects in the AIA’s “Work-on-the-Boards Survey,” and lack of financing is the most com- mon reason for delays. The slow construction is certainly be- ing reflected in the latest ABI num- bers. Following the first positive score

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