HIGHLIGHTS:
Third Quarter Billings Remain Sub-par While Inquiries Pick-up.
Survey results at the end of the third quarter showed advancement from the scores recorded at the end of the second quarter. While the September score of 49.2 was greater than the mid-year June score of 45.9, it suggests that industry revenues are not in an expansionary mode (scores above 50 indicate an increase in billings, while those below 50 indicate a drop in billings). The strong March IDBI score of 58.5 remains a high point for 2018. The new project inquiry three-month moving average score increased to 53.4 in September, up from a June score of 50.8.
Billingsā Growth Shows Mixed Results Across Size Cohorts.
Small and large firms reported sub-50 three month moving average billings scores for the third quarter, while medium- sized firms employing between 2 and 24 people reported strong IDBI scores in the high 50s.
Billingsā Growth Divided Geographically.
Looking across regions, third quarter IDBI billings increased compared to second quarter scores. On a 3-month moving average, firms in the Midwest (56.1), South (55.6), and West (54.5) maintained positive billings growth. Design firms operating in the Northeast slid to a 46.2 score and have maintain a pattern of reduced billings for the past eleven months.
Third Quarter Billings Uneven Across Market Sectors.
Single-family (47.3) and multifamily (47.6) residential project scores remain below the expansionary scores reported for the same period a year ago. Institutional sector billings rose into positive territory (50.0), while Commercial sector billings recorded an IDBI of 40.3, indicating a continued slide since March.
Six-Month Outlook: Stronger Business Conditions Expected.
Interior designers are optimistic about near term business conditions with 92 percent of respondents believing conditions will be about the same or better than they are now. Although the six-month business conditions index score for September of 54.6 is down from the March score of 62.7 and the June score of 59.6, the outlook for the design industry remains favorable despite a measured decline in expectations from the second quarter based on the IDBI and the Dodge Momentum Index. The direction of consumer attitudes about the future, as measured by the Conference Boardās expectations indicator, is in direct contrast but is expected to soften and align with other measures within the next month or so.
Pace of Construction Spending Decelerating.
Total U.S. construction spending in August 2018 was $1.32 trillion at a seasonally adjusted rate of 6.5 percent higher than in August 2017. Private residential construction spending has decelerated for single and multifamily housing starts according to the most recent Census Department Construction spending release. Rising interest rates and higher material costs are affecting construction spending.
Labor Market Continues at Solid Pace.
The employment market remains solid well into its ninth year of expansion. U.S. monthly employment gains averaged 190,000 in the third quarter. Nonfarm payroll employment increased by just 134,000 in September, the slowest monthly pace in one year, and weather conditions, specifically Hurricane Florence, likely pushed the quarterly data lower. There was an addition of 1,800 jobs in design services in August 2018 compared to August 2017, and similarly, architectural jobs added 8,300 positions over the same period.
According toĀ JackĀ Kleinhenz, ASID economist:
While we have seen moderation in growth for the design industry in 2018, it is too early to say that it has peaked. Recent softening trends in home sales, new home construction, and home improvement seem to be disconnected from the strength exhibited in the overall economy and are perplexing. Going forward, these conditions are likely to continue, but overall business conditions remain favorable.
THE THIRD QUARTER 2018 ASIDĀ BUSINESS PERFORMANCE SURVEY REPORT
ASID Survey: Third Quarter Billings
Survey results at the end of the third quarter showed advancement from the second quarter scores. While the September score of 49.2 was greater than the mid-year June score of 45.9, the scores suggest that industry revenues are not in an expansionary mode (scores above 50 indicate an increase in billings, while those below 50 indicate a decrease). The strong March IDBI score of 58.5 remains a high point for 2018. The new project inquiry three-month moving average rate increased to 53.4 in September, up from a June score of 50.8.
The ASID and AIA billings indices ended the third quarter in close proximity, hovering around 50, with AIA reporting 51.1 and ASID 49.2. Septemberās IDBI index of 49.2 was below its three-month moving average of 53.5, indicating a slowing momentum. Meanwhile, the AIA September billings index of 51.1 showed steadiness, nearly equaling its Juneās score of 51.3.
BILLINGS BY FIRM SIZE
Small and medium sized firms continued to report very strong billings during the third quarter, while billings at sole practitioners and large firms were soft (Fig. 3). Small firms of between two and nine employees reported an IDBI score of 63 in September with a 3-month moving average of 59.8. Medium firms with between 10 and 24 employees also reported a strong September score of 62.5, a stronger score than its three-month moving average of 57.5. Sole practitioners reported an IDBI of 42.9, lower than its three-month average of 49.7, which suggests some slowing. The reported score for the larger firms may be due to a smaller number of respondents for this size group.
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BILLINGS BY REGION
Looking across regions, third quarter IDBI billings increased compared to second quarter scores. On a three-month moving average, firms in the Midwest (56.1), South (55.6), and West (54.5) maintained positive billings growth (Fig. 4). Design firms operating in the Northeast slid to a score of 46.2 and have maintained a pattern of reduced billings for the past eleven months. Architecture firms across the country reported a similar pattern, with billing indexes on the increase in the Midwest, South, and West, and falling scores in the Northeast (Fig. 5).
On a methodological note…the geographic distribution of September ASID respondents closely mirrors the geographic distribution of all interior design firms. The respondents slightly over-represent the Midwest and Northeast while partially under-representing the other regions.
BILLINGS BY SECTOR
Fig. 6 and Fig. 7 illustrate the recent trends in billing performance by market sector on a quarterly basis. Both figures show a fall-off in business from highs in March. Single family (47.3) and multifamily (47.6) residential project scores remain below the expansionary scores reported for the same period a year ago. Institutional sector billings rose into positive territory with a score of 50.0, while Commercial sector billings recorded a second sub- 50 score in a row, 40.3, indicating month over month reduction in billings.
SIX-MONTH OUTLOOK:
DESIGN INDUSTRY CONTINUES TO EXPECT FAVORABLE FUTURE OUTCOMES
According to the September IDBI survey, 92 percent of respondents indicate conditions will be about the same or better than they are now. However, the six-month business conditions index score for September of 54.6 is down from the March (62.7) score and from the June (59.6) score.
The Conference Boardās September expectations sub-index of its overall consumer confidence measure gained 6 points to 115.3 during August and was 11 points higher than its June score.
The Dodge Momentum Index dropped in September to 159.5 from the revised June reading of 164.9. The Momentum Index is a monthly measure of the first (or initial) report for nonresidential building projects in planning, which have been shown to lead construction spending for nonresidential buildings by a full year. The Momentum Index may seem to have lost some impetus, according to Dodge Data & Analytics, and may be a payback to outsized gains in the late spring and summer.
The outlook for the design industry remains favorable but there has been a measured decline in expectations from the second quarter based on the IDBI and the Dodge Momentum Index.
PACE OF CONSTRUCTION SPENDING DECELERATING
Total U.S. construction spending in August was $1.32 trillion at a seasonally adjusted rate 6.5 percent higher than August 2017. Private residential construction spending has decelerated for single and multifamily housing starts according to the most recent Census Department Construction spending release. Rising interest rates and higher material costs are affecting construction spending. However, it is too early to conclude that the construction industry has peaked. The burst in public construction spending drove outlays to their highest level in just under a decade. Spending was largely driven by federal government projects, while state and local government spending has also contributed to recent grains.
Residential improvement spending (Fig. 10) amounted to $205,421 million in August 2018, a 5.3 percentĀ year-over-year increase. According to the Joint Center for Housing Studies of Harvard University, āAfter several years of solid acceleration, annual growth in national home improvement and repair spending is expected to soften in 2019, according to the Leading Indicator of Remodeling Activity (LIRA). The LIRA projects that year- over-year increases in residential remodeling expenditures will reach a decade high of 7.7 percent this yearĀ and then start to drift downward to 6.6 percent through the third quarter of 2019.ā As discussed previously, higher interest rates and flat home sales are likely to affect spending on home improvement and consequently, interior design services.
LABOR MARKET CONTINUES AT SOLID PACE
The employment market remains solid well into its ninth year of expansion. U.S. monthly employment gains averaged 190,000 for the third quarter. Nonfarm payroll employment increased by just 134,000 in September, the slowest monthly pace in one year. Weather conditions, specifically Hurricane Florence, likely pushedĀ the quarterly data lower. The unemployment rate has fallen swiftly from 4 percent in June to 3.7 percent in September. The U.S. economy has managed to add over 200,000 jobs per month on average over the first three quarters of 2018. The last time the U.S. economy recorded this pace was in 2015 when the unemployment rate was over 5 percent. As shown in Fig. 11, architectural and interior design services job growth continues with net gains for both professions. There was an addition of 1,800 jobs in design services in August 2018 compared to the same month a year earlier. Similarly, architectural jobs added 8,300 positions over the same period.
Please visitĀ https://register.gotowebinar.com/recording/6994193970496165121 to view theĀ ASID 2018 Interior Design Billings Index 3rd Quarter press conference held on Nov. 27.
The complete third-quarter IDBI report, including all charts and tables, will be posted at https://www.asid.org/resources/resources/index/resource-center
About the ASIDĀ Interior Design Billings Index
In November 2010, The American Society of Interior Designers launched its business performance index.
The ASID survey, conducted monthly, is designed to provide a unique perspective on current and future business conditions for the interior design industry nationally and regionally for all firm sizes. A total of 300 firms are invited to participate in this program. Firms included in this survey primarily offer interior design services. While many are interior design only firms, panelists report from architectural firms, engineering firms, and other related enterprises. Panelists are asked to report on their current billings relative to the previous months and to report on recent business inquires. A business sentiment question is also asked regarding how general business conditions, for the entire economy, will be six months from now. The results of the survey are compiled into diffusion indexes which are helpful indicators of changes in the direction of economic activity. The ASID indexes are centered on 50 percent (above 50 indicates expansion and below 50, contraction).