Experts warn this could be an early indicator of trouble ahead for design firms
February 5, 2019 (Newton, Mass.) — Despite 2018 bringing architecture and engineering (A/E) firms some of the most robust market demand in years, they may not be so lucky in 2019. PSMJ’s latest Quarterly Market Forecast (QMF) report shows some of the slowest proposal activity in more than five years in key client markets.
Since 2003, PSMJ Resources, Inc., the worldwide leader on improving the business performance of architecture and engineering organizations, has asked A/E firm leaders about their outlook and proposal activity in 12 major client markets and 58 submarkets on a quarterly basis. The data is reported in a Net Plus/Minus Index (NPMI). An NPMI value of 0% indicates an equal number of respondents are reporting growth and decline.
When asked about projected proposal activity for the first quarter of 2019 being higher or lower than the previous quarter, an NPMI value of 46% continues a trend of (while still in positive territory) declining proposal activity in market conditions.
Projected Q1 2019 Proposal Activity Compared to Q4 2018
“Since 1960, our average time between recessions is 73.5 months,” says PSMJ Principal David Burstein, P.E., AECPM. “We are now well past 100 months since the last one.” Burstein looks at A/E markets and submarkets, such as housing and subdivisions, as leading indicators of if, and when, the next recession will hit. The following chart illustrates PSMJ’s NPMI on actual Q4 2018 proposal activity for the housing market segment:
Actual Q4 2018 Proposal Activity Compared to Q3 2018
With an NPMI value dipping to its lowest level since clawing out of the recession in 2013, this is one potential indicator that trouble is looming for A/E firms. Burstein adds “Residential subdivision proposal activity is, arguably, the most upstream indicator of demand throughout the entire architecture and engineering industry. When you dig into this component of the housing market, NPMI values have declined in 3 of the past 4 quarters and are now down to nearly zero. Coupled with the weak data on new home sales, this indicates a slowdown coming and it is caused mostly by decreased affordability resulting from higher housing prices and mortgage rates.”
To learn more about PSMJ’s QMF or to participate in the next survey, visit https://www.psmj.com/surveys/quarterly-market-forecast. PSMJ members get complimentary access the complete report each quarter.
For more than 40 years, the mission of PSMJ Resources, Inc. has been to improve the business performance of A/E/C organizations worldwide. PSMJ offers published information, educational programs, in-house training, and management consulting services in Strategy, Business Development, Project Delivery, Human Resources, Financial Management, Mergers & Acquisitions, Transition Planning, and more to A/E/C professional services firms.
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