Anxious Markets Brace for Impact, with Rob McManamy

As global conflicts and domestic political dysfunction continue to roil markets with tariffs, inflation and overall uncertainty, industry economists still see strength and resilience among the chaos. But for how long? 

TRANSCRIPT:

Hello there everyone and welcome back to HPAC Editor’s Notes, the monthly news and opinion podcast of HPAC Engineering magazine, a publication of Endeavor B2B. I’m Rob McManamy, editor-in-chief of HPAC Engineering, and today I’ll be reviewing some of the latest economic news and analyses affecting our industry during this anxious spring of conflict in the Middle East, bottlenecks in the Strait of Hormuz, and continuing political dysfunction here in the U.S.

First, we’ll turn to the Architecture Billings Index, compiled monthly by the American Institute of Architects. Released April 24, the latest report says:

The AIA/Deltek Architecture Billings Index® (ABI) score was 49.8 for the month, meaning that the share of firms that reported increasing firm billings was essentially equal to the share that reported decreasing billings (a score above 50 means that the majority of firms saw increasing billings, while a score below 50 means that the majority saw decreasing billings). This is the closest that the ABI score has been to 50 since the first quarter of 2023. In addition, inquiries into new projects increased further in March, and backlogs at firms rose to an average of 6.6 months, the highest level since December 2023.

Backlogs increased most significantly at firms with a multifamily residential specialization (from 5.4 months in December to 6.2 months in March), while they held steady at 8.2 months at firms with an institutional specialization.

However, the value of newly signed design contracts decreased for the 25th consecutive month in March, and the decline accelerated from February. Although firm billings seem poised to turn positive for the first time in three years, the ongoing conflict in Iran and other broader economic stresses may prevent that from happening.

Business conditions in the broader economy were mixed in March, as the impact of the conflict in Iran came into sharper focus. Employment bounced back as nonfarm payrolls grew by 178,000 in March after shedding 133,000 jobs in February. Construction employment added 26,000 positions in that period, although growth remains flat on a year-over-year basis. Architectural services employment grew by 200 positions in February (the most recent data available) and is up by 2,700 positions from one year ago

However, inflation rose sharply in March, with the Consumer Price Index (CPI) increasing by 0.9%. Inflation was up by 3.3% on an annual basis this month. Most notably, energy prices spiked by 10.9% in March, with gasoline prices rising by a staggering 21.2%.

Observed new AIA Chief Economist Richard Branch in a post on LinkedIn…

“Inquiries hit 56.8 - its highest reading since June of 2022. Clearly, lots of "tire kicking" is going on from developers. But there still isn't much conversion to contracts and billings.

I'm going to call this a glass-is-half-full reading. That billings haven't moved sharply lower, given the concern about likely higher material prices due to the Iran conflict-led, run-up in oil prices, is a good thing. That said, material prices and contractor costs will increase sooner rather than later, which will weigh on billings,” noted Branch.

AIA also quotes two designers who responded to the survey…

• “Everything goes on hold nonstop; owners are afraid of world conditions.”—60-person firm in the West, commercial/industrial specialization;
• “Economic uncertainty is becoming a problem for our clients. We had two projects go on hold.”—11-person firm in the Midwest, mixed specialization.

Regarding prices, Associated Builders and Contractors (ABC) summed up the latest data in mid-April…

Construction input prices increased 2.2% in March compared to the previous month, according to the U.S. Bureau of Labor Statistics’ Producer Price Index data released April 14. Nonresidential construction input prices increased 2.3% for the month.

Overall construction input prices are 4.8% higher than one year ago, while nonresidential construction input prices are 5.4% higher. Prices decreased in 2 of the 3 energy subcategories last month. Natural gas and unprocessed energy materials prices were down 51.7% and 7.7%, respectively, while crude petroleum prices were up 20.2% in March.

“Construction materials prices surged in March and are now up 4.8% year over year, the largest annual increase since January 2023,” said ABC Chief Economist Anirban Basu. “This monthly increase is due to higher oil prices, a direct result of conflict in Iran, and it remains to be seen how that seismic geopolitical event will affect other input prices in the months to come.

“The rapid increase in diesel prices since late February, for instance, will raise shipping costs, putting upward pressure on virtually every construction material. Contractors remained confident that their profit margins would continue to grow, according to the March reading of the ABC Construction Confidence Index, and it will be interesting to see if that optimism persists in the event of prolonged oil market strife.”

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As we enter May, of course, there is no end yet in sight for the source of that oil strife, the conflict in Iran that began at the end of February.

Here in the U.S., the ongoing 'stop-n-go' federal budgeting impasse is wreaking havoc on industry hiring and planning.

According to the Bureau of Labor Statistics, roughly half of metro areas added construction jobs between February 2025 and February 2026. To avoid a broader slowdown in industry hiring, the Associated General Contractors of America (AGC) on April 29 called for the federal government to enact a new highway and transit funding law before the current one expires in a few months, contending that the measure was needed to boost construction employment and support overall economic growth.

Said AGC Chief Economist Ken Simonson, “Although a majority of metro areas added construction jobs in the latest 12-month period, it will become increasingly difficult to sustain job gains unless policy makers in Washington renew the highway and transit spending bill by September 30. If federal funding lapses, many good-paying jobs will disappear. Getting those workers back will be a major challenge.”

Challenges, of course, abound this spring. But if there is anything that the pandemic and post-pandemic periods have taught us in recent years, it’s that the resilience and ingenuity of this industry under stress are more than a match for the chaotic slings and arrows of this decade, the never-Boring Twenties.

Thanks everyone for listening to HPAC Editor’s Notes. We’ll be back in two weeks with another edition of HPAC On The Air. In the meantime, be smart out there and try to keep your heads even when others seem to be losing theirs.

Harvest those May flowers!

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