Billings show slight improvement, more to come?

The end of the first quarter of 2010 brought with it another slight bump in the monthly gauge of design activity by the American Institute of Architects, but the 46.1 number still reflects a decline in billings in March.
The AIA’s Architectural Billings Index was up from 44.8 in February, but until it reaches 50.0, it will still be a sign that the industry hasn’t yet turned the corner on the economic recession.

“It’s up a little, but right now we’re treading water,” AIA Chief Economist Kermit Baker told ZweigWhite in an exclusive interview about the latest numbers. “We’re waiting for something to pop through. There’s really not a lot of strength in these numbers.

“I thought we’d see a little movement, but frankly I thought it would be a bit more. We’re still working our way through this, but the number for March is the highest it’s been for a year and a half,” he says.

New project inquiries made a significant jump from 52.0 in February to 58.5 in March, but Baker has discounted the rise in that number for several months, saying it hasn’t been translating into new work despite the move upward. He has said the increase is likely due to more firms reaching out for any projects they think could possibly generate work for them at a time when revenue is at a premium.

Baker believes an increase in payrolls in the larger economy could bode well for the future in terms of billings in the design industry. He continues to point to the second half of 2010 as the time when the ABI will finally crack the elusive 50.0 barrier, reflecting an increase in design activity.

“If we see a 1- to 1.5-point increase for each of the next three months, we’re right there at that 50 number so we’re on track to reach it by the middle of this year,” he says. “That bump we’re seeing in payrolls will ultimately percolate into the design sector. It’s just a question of when it happens.”

After the recession in 2001, it took about three years for the billings index to reach 50 again, Baker says, and of course that recession was not nearly as deep as the one in which we are now engulfed.

“The more new jobs there are out there, these companies are going to need more facilities,” he says. “There’s been a pretty tight correlation over time between jobs picking up and design activity, then of course you see construction pick up nine to 12 months later.”

Baker doesn’t believe the apparent glut of commercial space will slow down the design recovery, saying the vacancy rates aren’t significantly higher than they have been in the trough of previous downturns.

Don’t look for the passage of health care reform to be the answer when it comes to design activity picking up, he says.

“I really don’t see a direct connection there,” Baker says. “I haven’t heard a good persuasive argument that the sector will change very much as a result of health care reform.”

The federal economic stimulus package could help, as about half of the money in the pot for design work is expected to be distributed in 2010. Although many have criticized the $787 billion spending package as not delivering the expected results, Baker sees it in a different way.

“The money has to work its way through the economy,” he says.