Design Activity in the Third Quarter Opens with a Bang

September 15, 2014

As of July, U.S. architecture firms have produced three straight months of accelerating gains in design billings. With a reading of 55.8 for the month (where any score above 50 signifies growth), the July reading reflects stronger gains in billings than any period since mid-2007. With solid monthly scores for new design contracts (at 54.9 this month) and new project inquiries (66.0), all signs indicate strong momentum building in design activity, which is expected to produce solids gains in construction later this year and into 2015.

Regional billings activity is also showing more consistent growth. Billings at firms in each of the major regions of the country were strong, with firms in the Northeast, Midwest, and West showing a reversal from declining billings as recently as two to three months ago. Firms in the South continue to report healthy business conditions, as they have every month for two straight years.

Another equally favorable sign is that all of the major building sectors are now reporting healthy gains in design activity. In particular, institutional firms reported healthy increases for July, with growth accelerating over June levels. Commercial/industrial firms have reported growth each month this year, while residential firms now have an almost three-year uninterrupted string of gains.

Economy coming around

After a slow start to the year, the economy is finally beginning to perk up. The preliminary estimate for economic growth in the second quarter was just under 4 percent, more than offsetting the revised estimate of a 2.1 percent decline during the first quarter. One key reason for this reversal was increased business investment—including investment in new structures—which was estimated to have grown at a 5.5 percent pace in the second quarter, up from 1.6 percent in the first quarter.

Feeling more comfortable with the economic outlook, U.S. businesses also continue to increase their payroll headcounts. Payrolls increased nationally by 209,000 in July, the sixth straight month that employment has increased by at least 200,000 positions. Construction is also benefitting from the general increase in employment, with payrolls at construction firms increasing every month this year.

The housing market continues its recovery, though the momentum has slowed from the fourth quarter of last year. Still, national housing starts totaled almost a million during the second quarter, up from 925,000 in the first quarter. One reason that the housing recovery is expected to continue at a healthy pace is that home prices are rebounding strongly, suggesting that demand is growing. For each of the past four quarters, house prices nationally have been increasing at a double-digit pace compared to year-ago figures, according to the S&P/Case-Shiller Home Price Index. A strengthening housing market has helped to boost consumer confidence levels, and also has encouraged more spending, as evidenced by the recent strong increases in national retail sales figures.

Reproduced with permission of The American Institute of Architects, 1735 New York Avenue, NW, Washington, DC 20006.