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A leading indicator of commercial building activity points to a rocky future for American business in the coming months.
The American Institute of Architects (AIA) said last week that its Architecture Billings Index (ABI) recorded by far the largest drop in activity in the measure's nearly 25-year history.
The ABI leads nonresidential construction activity by nine to 12 months by asking survey respondents whether their billings increased, decreased, or stayed the same in the month just ended, the AIA said. An index score of 50 means no change from the month prior. Above 50 means billings were higher, while below 50 they were lower.
That index plummeted to 33.3 at March's end, a drop of 20.1 points in a single month. By comparison, the index dropped 8.3 points at the start of the Great Recession.
"It reflects just how quickly and fundamentally business conditions have changed across the country and around the world in the last month as a result of the COVID-19 pandemic," the AIA said in its April 22 announcement.
The ABI reflects billings for construction to take place in the months ahead. Another measure of building activity, housing starts, took a similar plunge in March.
Northeast especially roughed up, specialists see varying impact
The Northeast saw the largest ABI drop to 38.4, which the AIA attributed to the virtual shutdown of New York City and a construction stop order in Boston. The West was at 45.3, the Midwest at 44.2, and the South at 44.2.
The AIA said industrial and commercial specialists reported the softest conditions in terms of billings, while the smallest decline was in the institutional vertical. "Some of those firms reported actually seeing a modest uptick in work due to increased demand for healthcare facilities," the AIA report said. "And some firms reported that school projects are actually getting underway early now that many schools are shuttered for the rest of the academic year."
Cuts in staff and pay
"Though most architecture firms have made quick transitions to remote operations, the complete shutdown of business activity is severely impacting architects," said AIA Chief Economist Kermit Baker.
A separate survey of ABI panelists done in mid-March found firms predicting an average of 17% in revenue losses over the next three months, the AIA said, with a third predicting losses of 25% or more.
In response, 53% have frozen hiring, 32% have frozen salaries, and 12% have reduced salaries, the AIA said. Ten percent have already laid people off, and 38% are considering doing so.
And three-fourths of the respondents said that by the end of 2020 they will have "trimmed all unnecessary expenses at their firm to stay in the best possible financial position."
The post-pandemic future looks uncertain to many of the ABI panelists. Said one respondent, from a 40-person mixed-specialty firm in the Northeast, "Seventy-three percent of our backlog is canceled or put on hold, maybe to never return."
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