As a general rule, the performance of the construction industry impacts business conditions in the architecture and engineering (“AE”) industry. In other words, when the U.S. construction industry performs well, demand for the services of AE firms is typically strong. Conversely, when the U.S. construction industry experiences a slowdown, firms in the AE industry may find that fewer clients are requesting their services.
High inflation rates throughout 2022 caused the U.S. Federal Reserve to raise interest rates several times in an attempt to slow down inflation. This impacted the construction industry as a whole but resulted in an outsized impact on the residential construction market. Nevertheless, in most respects, the AE industry remained strong, and going into 2023, construction backlog was high. Further, engineering firms registered growing revenues, and for the majority of the year, most architectural firms reported an increase in billings and inquiries into new projects. At the same time, however, as 2022 progressed, the shortage in building materials and other supply chain-related difficulties continued to challenge the AE industry.
In 2023, high interest rates, inflation, supply chain issues and other economic challenges continued to impact the construction and AE industries. As construction starts fell in 2023, architecture firms kept receiving inquiries regarding new projects but at a slower pace than in 2022. Similarly, clients signed new design contracts, but values were often flat. Meanwhile, the performance of many engineering firms remained relatively strong in 2023, and the firms that experienced a slowdown were often able to rely on a significant backlog of business. Moving into 2024, these same trends continue for engineering firms, although—by year-end—revenues have the potential to be slightly lower than they were in 2023.
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