The architecture industry was impacted this year by market volatility, rising interest rates, and evolving labor dynamics. This unusual business climate was reflected not only in the Architecture Billings Index (ABI) and the Dodge Momentum Index (DMI) but also in the pattern of job openings around the country, also observed through Archinect Jobs, the leading job board for the architecture industry in the USA.

Hints of 2023's challenges began in late 2022, with a downturn in both the ABI and DMI to kick off 2023. This signaled a cautious approach by firm owners and clients alike amidst tightening credit conditions and rising interest rates. This recessed business landscape was quickly echoed in the job market, as seen by a substantial 51.9% decrease in job advertising volume in January 2023 compared to January 2022. This trend of reduced job postings continued throughout the year, with monthly declines respective of the same months in the previous year, ranging from 32.3% to 56.2%, indicating a hesitant approach to hiring new architects. In contrast, the previous years had seen varied movements in job advertising volumes, with a 10% increase from 2021 to 2022 and a striking 148.6% increase from 2020 to 2021, as the industry bounced back after the initial hit Covid took globally.

As the year progressed, both the ABI and DMI numbers were unpredictable. Moments of recovery, such as the slight rebound in May driven by institutional planning, were only offset by steeper downturns. Some sectors, particularly manufacturing, showed notable growth in construction activity, while others, like residential construction, faced more variability. This sector-specific fluctuation was paralleled in the architecture job market reflecting recession-like activity.

Employment was one of the most unexpected business conditions of 2023. The construction industry experienced major shortages and demand for workers, while the architecture industry witnessed a marked scaling back in recruitment, with big layoffs. Economic pressures like inflation and geopolitical tensions played a likely role. 

Towards the latter part of the year, the ABI, DMI, and job openings all pointed to a continued cautious and strategic approach by firms. Construction starts experienced declines, reaching a ten-month low in November, as the industry navigated high interest rates, labor shortages, and tightened credit conditions. The architecture sector mirrored this trend, with firms adapting their hiring and business strategies in response to the evolving economic landscape.

Let's look at the year month-by-month...

January showed a cautious start to the year

January 2023 marked a negative, slightly improved start for the architecture and construction industries compared to the previous month. The ABI was at 49.3, representing the fourth month of a continued decline in design services demand. This trend was echoed in the construction sector, as the DMI also declined, reflecting a slowdown in nonresidential construction planning. The architecture job market mirrored this cautious sentiment, experiencing a significant 51.9% decrease in job openings compared to the previous year, while the construction industry faced a sharp drop despite high demand for workers. These trends highlight rising interest rates and tighter credit's early-year impact.

February hinted at possible sector improvements

In February, the architecture sector saw the ABI dip to 48.0, yet new project inquiries and design contracts hinted at possible improvements. The sector experienced a 49.2% decrease in job openings compared to February 2022, reflecting continued hiring hesitation. Conversely, the construction industry witnessed a modest rebound in the DMI, driven by institutional projects, and a surprising 7.6% rise in single-family housing starts, despite mixed results in overall construction starts. The persistently high demand for labor in construction indicated underlying growth potential amid economic challenges.

March marked a positive shift despite challenges

March saw a positive shift in the architecture sector, with the ABI rising to 50.4, signaling the first increase since September of 2022, though the sector still struggled with a 56.2% drop in job postings compared to March 2022. Conversely, the construction industry faced a decline in the DMI due to economic uncertainties, yet construction starts rose by 19%, led by large manufacturing projects. Despite the highest layoff rates since the pandemic's start, the demand for construction workers continued to be robust.

April experienced slight industry downturns

In April, the ABI fell to 48.5, reflecting a slight downturn, but increased project inquiries offered some hope. Architectural job advertising dropped significantly by 48.8% relative to the previous April. Meanwhile, the construction sector saw the DMI decline due to weak commercial planning, despite gains in the institutional sector. Construction starts slowed down overall, with a sharp decrease in manufacturing starts, counterbalanced by growth in residential building starts, amidst ongoing economic uncertainties.

May witnessed a rebound in architecture and construction

May witnessed a rebound in architecture, with the ABI rising to 51.0, signaling increased demand and the highest level since September 2022. Job openings saw a lesser decline of 40.6%, hinting at a recovery in recruitment. The construction sector also showed signs of recovery, with a slight increase in the DMI, led by institutional projects, and mixed but generally positive construction starts, reflecting the industry's resilience amid fluctuating economic conditions.

June reflected stable demand with ongoing pressures

June's ABI held steady at 50.1, reflecting stable demand in the architecture sector, despite a 40.0% decrease in jobs compared to the previous year. In construction, the DMI declined due to reduced institutional planning, while commercial planning saw growth. The sector experienced mixed construction starts, with multifamily starts decreasing but single-family starts increasing, amidst ongoing labor shortages and broader economic pressures.

July indicated flat growth in the industry

July saw the ABI stabilize at 50.0, representing a period of flat growth in the architecture industry, coupled with a cautious hiring approach as job advertising volumes dropped by 45.2% from the previous July. In construction, starts increased by 17%, with residential starts rising by 20% and nonresidential starts declining by 6%. This mixed performance, against the backdrop of high interest rates, labor shortages, and material price concerns, suggested a plateauing of activity in the construction sector.

August signaled an end to mid-year stability

August's ABI dropped to 48.1, signaling an end to the mid-year stability and reflecting a cautious sentiment that was also evident in the job market, with a 54.5% decrease in job advertising compared to August of the previous year. In the construction sector, starts saw a 6% increase, reaching a rate of $1.3 trillion, primarily driven by a significant 40% rise in nonresidential starts, notably in the manufacturing sector which surged by 285%. However, residential and nonbuilding starts declined by 1% and 14%, respectively, amid challenges like sustained high interest rates and political uncertainties.

September saw significant industry downturns

In September, the architecture industry saw a significant downturn, with the ABI plummeting to 44.8, reflecting a sharp decrease in demand. This decline was mirrored in the job market, where job advertising volumes fell by 56.1% compared to September 2022, indicative of the reduced demand and prevailing economic uncertainty. The construction sector also experienced a challenging month, with a 6% decrease in overall construction starts. This included a 4% drop in nonresidential starts, a 6% decline in residential starts, and a 9% fall in nonbuilding starts. Cumulatively, total construction starts for the year through September were 3% lower than the same period in 2022, primarily due to factors like high interest rates, labor shortages, and tightened credit conditions impacting project initiation.

October continued the trend of declining billings

October saw the ABI fall to 44.3, continuing the decline in architectural billings and client commitments, alongside a 41.4% drop in job openings compared to the same month last year. In construction, the DMI experienced a slight 1% increase, buoyed by commercial sector gains. However, construction starts overall declined by 7%, with a significant downturn in nonbuilding starts and a modest decline in residential starts, contrasted by an 8% increase in nonresidential building starts.

November brought slight improvements amid declines

November saw a slight improvement in the architecture industry with the ABI increasing to 45.3, though still below the growth benchmark, accompanied by a 45.4% decrease in job advertising year-over-year. Construction starts experienced a significant 15% decline, reaching a ten-month low, with notable reductions across nonresidential, residential, and nonbuilding sectors, emphasizing continued challenges in the construction industry.

2023 brought a complex blend of challenges, setting a unique stage for 2024. While navigating economic uncertainties and shifting market dynamics, firms identified silver linings in hiring from a large pool of top talent, enhancing marketing strategies, and updating portfolios during these downturns. This period has been pivotal for strategic business development and innovation. We sincerely thank our dedicated community for their resilience and perseverance. As we celebrate the holidays, we look forward to a 2024 filled with optimism, growth, and success.