Architecture firms reported that firm billings continued to grow in July, but the pace of growth slowed for the second month in a row. While any Architecture Billings Index (ABI) score over 50 indicates that firm billings are increasing, the July score of 50.7 indicates that growth is nearly flat. However, this is not yet cause for concern because indicators of new work in the pipeline—measured by inquiries into new work and the value of new signed design contracts at firms—both remained strong in July.

However, softness in firm billings was pervasive across the country, with firms in all regions except the South reporting decreasing billings for the month. Billings have been soft at firms in the Northeast for the entire year, while firms located in the Midwest saw billings start to weaken in the second quarter. But billings have been particularly robust at firms located in the South this year, continuing the trend of the last several years. Billings also remain strong at firms with a multifamily residential specialization, while the pace of growth in firm billings at firms with both a commercial/industrial and institutional specialization has slowed in recent months.

Conditions in the general economy were fairly strong in July, with 157,000 nonfarm payroll positions added. However, these gains were below the average monthly gains of 203,000 over the last year. But both manufacturing employment and construction employment had strong growth in July, with construction employment adding 19,000 new positions for total gains on 308,000 so far in 2018. Architecture services employment also continued to rise in June (the most recent data available), adding 1,500 new positions for a total of 197,600 employed in the sector.

In addition, advance figures for the gross domestic product (GDP) for the second quarter of 2018 were released in late July and showed that real GDP increased at an annual rate of 4.1 percent for the quarter, a stronger rate of growth than the first quarter, which was 2.2 percent. While this figure may be revised in the coming weeks, it indicates that the broader economy remains healthy.

Impact of tariffs on the profession?

This month we asked firm leaders responding to the survey about the impact of the recent tariffs the US has imposed on other countries, as well as the retaliatory tariffs imposed upon the US, updating a similar question asked in April. Overall, slightly more than one third of firms (37 percent) indicated that they have seen specific consequences on projects as a result of the tariffs, an increase from 24 percent that reported the same in April. However, 49 percent of firms reported that they have still not seen any impact, while the remaining 14 percent of firms indicated that they were not aware of or not sure of any impact.

Firms located in the West were most likely to report having seen specific consequences of the tariffs on their projects (43 percent), while firms in the Northeast were least likely to report an impact (28 percent). Firms with multifamily residential and institutional specializations were also much more likely to report an impact than firms with a commercial/industrial specialization (43 percent and 42 percent of firms versus 30 percent of firms). Overall though, regardless of whether they had seen a direct impact on their firm’s projects, half of all firms (51 percent) indicated that the tariffs have had negative overall consequences on projects at their firm, with just 2 percent reporting positive consequences, and the remaining 47 percent seeing neutral consequences.

Of the firms that have seen a direct impact from the tariffs, the most commonly cited change that the firm has made or expects to make as a result is material substitutions due to cost considerations (61 percent of firms), followed by projects redesigned to accommodate rising prices related to the tariffs (57 percent of firms). Firms also reported that some projects were either delayed, or accelerated due to the impact of tariffs, but just 15 percent of firms reported that projects had been outright cancelled due to rising materials prices/contractor bids from the tariffs.

This month, Work-on-the-Boards participants are saying:

"Conditions still busy, but contractor worry over tariffs and uncertainty of pricing/budgeting is causing issues with owners." —25-person firm in the South, institutional specialization
"Remain positive but cautious. Rising interest rates may have a significant impact." —15-person firm in the Midwest, commercial/industrial specialization
"The discussion of tariffs and the impact on construction costs happens on all projects. Everyone I know is waiting for the impact to happen and expects to see it by the fourth quarter." —31-person firm in the West, mixed specialization
"Business is strong. Best it’s been since 2008." —145-person firm in the South, commercial/industrial specialization