Recession or Not Recession?
Posted on: 6/30/2022
Interest Rates are going up, Inflation is out of control – heading for a Recession, no doubt… or are we? Dan Crowley outlines the importance of Rate of Change and comparing the Architecture Billings Index (ABI) rate of change over time.
Rate of Change is a great “lagging” indicator that helps you identify how your management activities may change based on the “Phase” your business is in. For example, many of you grew your business slowly and then more rapidly last year – this is the GROWTH phase – as such you would want to do more specific activities to support that growth such as accelerating training, searching your processes for future bottlenecks, or continue to build inventory. This past spring, that GROWTH started to slow, so you were growing over the previous period but just not as fast. This phase is considered, WARNING, and management activity may change to budget, marketing, and workforce reductions. You may begin to look more closely at balance sheet management. Make sure you get with your facilitator or business development manager (Patrick Tunnicliffe, Charlie Petersen, me) to discuss.
We will also begin a “leading” indicator analysis of Architecture Billings Index (ABI) for the Equipment Rental side of our customers outlined here:
WASHINGTON – Architecture firms reported increasing demand for design services in May, according to a new report today from The American Institute of Architects (AIA).
The ABI score for May was 53.5. While this score is down from April’s score of 56.5, it still indicates very strong business conditions overall (any score above 50 indicates an increase in billings from the prior month). Also in May, both the new project inquiries and design contracts indexes expanded, posting scores of 63.9 and 56.9 respectively.
“The strength in design activity over the past three months has produced a broader base of gains. The Northeast region and Institutional sector have struggled with slow billings activity, but now have posted consecutive months of positive scores.” said AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “With the improvement in inquiries and new design projects, demand for design services will likely remain high for the next several months, despite strong economic headwinds.”
Key ABI highlights for May include:
- Regional averages: West (59.3); Midwest (56.8); South (52.3); Northeast (51.4)
- Sector index breakdown: commercial/industrial (57.7); mixed practice (56.2); multi-family residential (54.5); institutional (51.7)
The Architecture Billings Index (ABI) is a leading economic indicator for nonresidential construction activity, with a lead time of approximately 9–12 months. The index is derived from The American Institute of Architects (AIA) Work-on-the-Boards survey, which has gathered data on shifts in billings from architectural firm leaders for over 20 years.
The survey panel asks participating architectural firms whether billings increased, decreased or stayed the same in the month that just ended. According to the proportion of respondents choosing each option, a score is generated, which represents an index value for each month.
- An index score of 50 indicates no change in firm billings versus the previous month.
- A score above 50 indicates an increase in firm billings versus the previous month.
- A score below 50 indicates an decrease in firm billings versus the previous month.
- NOTE: Index numbers cited for the last three reported months are preliminary.
- The regional and sector categories are calculated as a 3-month moving average, whereas the national index, design contracts and inquiries are monthly numbers.
Lastly, if you are Event & Tent rental you will see other leading indicators that may be more obvious and evident: Consumer Price Index, Inflation Rates, and Corporate Spend. Report back to us what you like to use as a “leading” indicator!
Peer Executive Groups
Industrious Avenue of the Arts:
230 S Broad St
Philadelphia, PA 19102