STARTLING RESULTS CAME FROM tED MAGA- zine’s Q2 economic roundtable update. The responding members of the 2017 tED econom- ic roundtable (find it by clicking on the Digital Edition tab at tedmag.com and then going to the January 2017 issue) are seeing uncommon levels of activity that could portend spot labor shortages and growing backlogs. Architecture firms themselves may be short- handed as they prepare the plans for the wave of projects planned for the next few quarters. There are reasons this pace will not continue indefinitely, but for now, things are hot. Here, we checked in with Kermit Baker, chief economist of the American Architectural Association and the overseer of the Architec- tural Billings Index (ABI); Neal Lyons, who serves as vice president, partner project sys- tems, for Schneider Electric; and Al Kent, prin- cipal, advisory services, PwC.
Baker: Interestingly, although our ABI has generally been seeing slower growth, which suggests a slower con- struction market toward the end of the year, recently it has posted three consecutive months of growth in design rev- enue at architecture firms. However, the news at this point is that new project work coming into architecture firms has seen exceptionally strong growth so far this year. In fact, new project activity has pushed up project backlogs at architecture firms to their highest level since the design market began its recovery earlier this decade. This trend of project work coming into architecture firms faster than they can complete design activ- ity suggests staffing shortages at many firms across the coun- try. In fact, a growing number of architecture firms are reporting that they are having difficulties finding design staff for key positions. What is being borne out in the results is the predictive value of our New Projects Inquiry Index, which has been strong through the year despite the more modest growth in the
ABI. As I noted at the time, it suggests strong fundamen- tals in the market with occasionally volatility in billings. Also interesting is the nationwide scope of the growth, which is being seen in all regions and most sectors, with the possible exception of multifamily housing. Firms in the South and Midwest are reporting stronger growth in design activity, while those in the Northeast and West are closer to flat—but all are growing.
Lyons: At Schneider, business on the equip- ment side is better than the indicators would suggest. In the first fiscal half, four major con- struction sectors are up by double digits: in- dustrial facilities, medical, commercial office buildings, and water/wastewater. Data cen- ters are also up significantly, but that business is episodic and unpredictable. The only mate- rially negative sector is retail construction, which is off due to online competition. Growth is spread across the country for nonresidential construction. The South and the West will lead in total construction due to the residential impact. Because of the strong pace of first-half orders, the in- dustry should see strong second-half revenue growth. In fact, the industry as a whole is having trouble meeting the surge in demand. It is even possible that an electrical labor shortage will develop as these projects move to the installa- tion stage. Commodity prices are more driven by the futures mar- kets than by current spot demand. Nevertheless, they are likely to stay high, at least in metals. Plastics and precursors derived from petroleum are down because of oil and gas prices. The new gov- ernment focus on do- mestic sourcing and possible barriers may become critical for spe- cialty e-steel as there is no adequate domestic source. Aside from sourcing questions, the primary political factors in the market right now are the push to buy Amer- ican and stay Ameri- can and the movement for tax changes. Those really are changing the
Economic Expectations for 2017
About the Same
U. S. Economy
Source: 2017 NAED Market Overview