For 2022, the overall architecture, engineering and construction (AEC) industry outlook is strong with most firms seeing growing backlogs, solid financials, and new opportunities. While the industry as a whole is doing well and projects are moving forward at an accelerated rate, there are concerns about the U.S. economy and the changing employee landscape. Explore three key factors impacting the AEC industry.
1. Optimistic Outlook
The United States gross domestic product (GDP) expanded 5.7 percent in 2021 – the strongest annual growth in decades. “You have to go back to 1984 to try to find a landscape that was stronger,” said Steve Gido, Rusk, O’Brien, Gido + Partners in a recent AEC Market Outlook webinar.
This growth provides a solid and expanding foundation for AEC firms to build upon. According to the quarterly ACEC Research Institute Engineering Business Sentiment survey, respondents are “extremely optimistic” about the current state of their firms and the industry.
Overall net financial rating is +88 for firms and +82 for the industry overall, with future outlook of +51 for financials and +42 for the industry. Net financial rating improved significantly and future outlook increased slightly for firms and the industry from last quarter’s (2021 Q4) results.
The median backlog average is 10 months and 66% of firms project this number will increase in the next 12 months. Forty-five percent of respondents have a current backlog of one year or more.
The Architecture Billings Index (ABI) for January 2022 shows steady growth at architecture firms with an overall score of 51.0. It also shows that the new design contracts score is higher than the billings score at firms in ten of the recent 12 months. This likely indicates that project backlogs at firms may continue to grow.
Firms are exploring ways to better manage growth and tap into opportunities in new and expanding markets. Outlook is positive for all market sectors with the top sectors including Water/Wastewater (Net Rating +77), Healthcare Facilities (+75), and Data Centers (+74), according to ACEC’s survey.
The recent Infrastructure Investment and Jobs Act should provide significant funding for state, local and education (SLED) projects across a variety of industries. These are expected to include: $110B for roads and bridges, $66B for rail, $65B to close the broadband gap, $55B for clean water and to eliminate lead pipes, and $46B to mitigate floods, wildfires and droughts.
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2. U.S. Economy and Inflation
Even though the overall AEC outlook is good, there are concerns about the future of the U.S. economy. These numbers have dropped in the ACEC survey. Seventy-three percent of respondents indicate they are “extremely concerned” about inflation. The Net Rating for the U.S. Economy is much lower, although still positive, at +29 and represents a significant decline from +40 last quarter. Future sentiment for the U.S. is even weaker, coming at -3.
Most economic forecasts indicate that the GDP will decline this year to the three to four percent macro range. Inflation and price fluctuations make it challenging to fully predict project profitability as there is no certainty for what costs will be.
3. Changing Employee Landscape
Most AEC Firms are hiring and wages are increasing. This creates a tight job market. Eighty percent of ACEC survey respondents predict there will be an increase in hiring over the next 12 months at their firms with 90% indicating their organization has at least one opening with a median of five openings per company. That number is even higher for large firms with 60-80 job openings as the average for companies with 500+ full time employees.
Ninety percent of ACEC respondents say that the average salary at their firm increased in the past year. The “average firm” salary increased five percent over the past year, although 14% of firms report average increases of 10% or more. Compensation for architectural positions is expected to increase an average of 5% this year, according to the Architecture Billings Index (ABI).
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