Despite 2019 bringing architecture and engineering (A/E) firms some of the most robust market demand in years, they may not be so lucky in 2020. PSMJ’s latest Quarterly Market Forecast (QMF) report shows some of the slowest proposal activity in more than 10 years in key client markets.
Since 2003, PSMJ Resources 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 opportunities for the last quarter of 2019 being higher or lower than the previous quarter, an NPMI value of 19 percent continues a declining trend (while still in positive territory) to a level not seen since 2009.
Overall Market
Proposal Opportunities to Prior Quarter
NPMI Values
“The most leading indicator of the overall health of the A/E/C market is PSMJ’s Proposal Net Plus/Minus Index (NPMI) which remains positive but at a lower level than in previous quarters,” says PSMJ Principal David Burstein, P.E., AECPM.
“Another key indicator is the housing subdivision market, which influences about 80 percent of A/E business activity. The Housing Subdivision NPMI also remains positive, although the trend has not been favorable. This slowdown is part of the global slowdown caused primarily by the various trade wars currently underway, especially the one between the U.S. and China.”
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 Q3 2019 proposal activity for the housing market segment:
Proposal Activity for Housing
NPMI Values
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, “These results probably indicate slower revenue growth in the coming quarters. However, the fundamentals of the U.S. and Canadian economies remain strong and I believe President Trump will finalize trade deals with China and others by early 2020. Also, the effects of lower interest rates (especially lower mortgage rates) should begin to boost the housing market. I don’t see the current slowdown leading to a recession – at least not before the next presidential election.”
For more detailed information, download a copy of PSMJ's Quarterly Market Forecast.
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For more in-depth insight to the most recent Quarterly Market Forecast results, check out this PSMJ podcast:
What: 2019 is Going Strong. How Positive are you about the A/E Optimism? U.S. and Canadian GDP has been growing steadily since The Great Recession. And 2019 continues the trend as the economy is going strong. Since 2003, PSMJ has asked A/E firm leaders every three months about their outlook for over 50 A/E markets and submarkets. Join your colleagues and PSMJ’s Dave Burstein for this 30-minute live podcast and learn:
• More about what PSMJ’s most recent Quarterly Market Forecast tells us about proposal activity and backlog trends in various sectors and geographic regions in North America.
• Why business in the A/E sector is brisk and why it will continue (at least for a while).
• Why the housing market is the best early indicator of what will happen in most other A/E market sectors.
• How to be part of the PSMJ’s Quarterly Market Forecast.
