Professional Practice Notes: It’s The Economy…Still
Twenty years and two recessions ago, Bill Clinton’s successful presidential campaign made famous the phrase “It’s the economy, stupid.” Midway through 2012, in the midst of another presidential campaign, it’s the economy…still…that is making headlines and causing havoc for many businesses and individuals.
Architecture practices are cyclical by nature, tied in large part to the ups and downs of employment and real estate markets. While economists declared the “Great Recession” to have ended many quarters ago, the recovery is so faint that architects are still navigating through a depressed design and construction market. It is clear that this cycle is much deeper and longer than any since the Great Depression; even veterans of multiple recessions are not used to the prolonged economic weakness we are living through. In addition to the cyclical factors that are depressing the building sector, some economists note that demographic and structural changes are altering “normal” patterns of development.
On June 20th the AIA reported that following the first negative reading in five months, the Architecture Billings Index (ABI) has had a significant drop in May. May’s ABI score was 45.8, following a mark of 48.4 in April. This score reflects a sharp decrease in demand for design services (any score above 50 indicates an increase in billings). AIA Chief Economist, Kermit Baker, PhD, Hon. AIA said, “For the second year in a row, we’re seeing declines in springtime design activity after a healthy first quarter. Given the ongoing uncertainly in the economic outlook, particularly the weak job growth numbers in recent months, this should be an alarm bell going off for the design and construction industry.” Baker went on to say, “The commercial/industrial sector is the only one recording gains in design activity at present, and even this sector has slowed significantly. Construction forecasters will have to reassess what conditions will look like moving forward.”
The recent April and May ABI setback is concerning, since the housing market had been moving into recovery, with business conditions at residential architecture firms improving for the first quarter of 2012; more than one third of participating residential firms reported that their billings had increased. Not all firms experience the lingering macro economic slump, and for some the inquiries and billings are edging upward despite the broader statistics. Based on the first quarter uptick, even with the recent second quarter headwinds, a modest recovery in 2012 is still likely followed by a stronger upturn in 2013. Overall, nonresidential construction spending has been forecast to increase by more than 6 percent next year, again with stronger numbers on the commercial and industrial side.
Architects in practice cannot alter the state of the economy, which is an externality outside of ones control. However, architects can continue to hone their technical skills and sharpen business management methods to survive the weak economy a little longer, and position their practices to thrive again when (not if) more work returns to the industry.
So it is the economy on which much of professional practice success hinges and I believe it is wise to understand the state of the economy at a macro level to get the 30,000-foot perspective and advocate for policies that can improve the building sector. Even more importantly, it is imperative that architects take steps to improve their position in the micro economy where they practice.
AIA NS Professional Practice Committee Chair: Ronald C. Weston, AIA, LEED AP BD+C Email: email@example.com