Does it still work this way? - When the Architect gets paid, the Reprographer gets paid?

In an article posted on the AIA's web-site in late June, Jennifer Riskus, AIA's Manager of Economic Research, wrote an article that talks about business conditions in the Architecture industry, including insights into the ABI AIA Index, the commercial real estate lending environment, and "accounts receivable collections." The article includes charts and graphs.

Here's the title of that article:

ABI Slips Slightly in May as More Firms Experience Softening Business Conditions
More than 60% of firms anticipate being able to collect nearly all current outstanding receivables
By Jennifer Riskus, AIA Manager of Economic Research

And, here is an excerpt from that article:

Most firms anticipate collecting majority of outstanding receivables

As the economy has begun to improve, nearly half (40%) of our survey panelists reported that the outstanding time for previously invoiced receivables on active projects averages 30 to 60 days. Just 14% indicated that it was 90 days or more. The average number of days outstanding was approximately 60, although that time is shorter for firms in the West (53 days) and longer for firms in the Midwest (60 days). Small firms, with annual billings of less than $250,000, are also reporting shorter outstanding times for receivables while the largest firms, with annual billings of $5 million are reporting the longest times (43 and 69 days respectively).

In addition, more than one quarter of respondents (28%) anticipate that they will collect all of their current outstanding receivables, while an additional 35% expect to be able to recoup more than 95%. Fewer than 10% expect that they will never collect 25% or more of their current outstanding receivables. In the Midwest this share is higher: 15% of firms anticipate they will lose more than a quarter of their current outstanding receivables, compared to just 4% of firms in the Northeast. Firms with less than $1 million in annual billings are more likely than larger firms to report that they expect to collect all current outstanding receivables, but they are also more likely to anticipate that they may lose out on 25% or more of their current outstanding receivables.

- - - - - - - -

You can read the full article at this Internet address:

http://www.aia.org/practicing/AIAB083478

Joel's comment:

Years ago, when we were a small, young company in the reprographics industry, our cash-flow (collections of A/R) was highly susceptible to our customers' A/R collections activity. When the Architect did not get paid, we did not get paid. When the Engineer did not get paid, we did not get paid.

AIA reports ABI Index for May 2010 down from previous month. NOT GOOD NEWS, NOT A GOOD SIGN FOR REPROGRAPHERS

Even though the ABI Index report for May is not yet posted on the AIA's web-site, I found this news release on Reuters.com this morning. Read on.......

U.S. architecture billings fall, credit still tight
June 23, 2010, 12:01am EDT
* April architecture billings index down 2.6 pts
* New project inquiries also down in May
* Lenders cautious about making construction loans

NEW YORK, June 23 (Reuters) - A leading indicator of U.S. nonresidential construction spending fell in May after three months of gains, as lenders remain cautious about making construction loans, according to an architects' trade group.

The Architecture Billings Index was down 2.6 points to 45.8 last month, after reaching its highest level since January 2008, according to the American Institute of Architects. A measure of inquiries for new projects fell 4.1 points to 55.5.

Readings above 50 indicate expansion, while those below 50 to declining demand. May's results were a surprise, since earlier readings had pointed to recovery, said AIA Chief Economist Kermit Baker.

"The overriding issue affecting the entire real estate sector is unusual caution on the part of lending institutions to provide credit for construction projects," Baker said.

Of four U.S. geographic regions, only the Northeast was above 50 in May, and only the commercial/industrial sector stood above that mark. Categories include institutional architecture, commercial and industrial space and the mixed-practice category, which combines retail and other uses.

The AIA's billings index, begun in 1995, is an indicator of construction spending nine to 12 months in the future. It is often cited by companies that sell to the construction sector as a reliable gauge of that market.

(Reporting by Nick Zieminski, editing by Bernard Orr)

- - - - - - - - - - -

Joel's comments:

1) Reuters failed to mention that another public company - American Reprographics (NYSE:ARP) - also generates revenue from construction activity. And, of course, all of the privately-held reprographers in the U.S. (and, for that matter, in the rest of the world) generate revenue from construction activity.

2) I had previously speculated that the ABI Index for May 2010 would hit 50 or above, after nearly two years of being below 50. And, I was wrong. My guess about the ABI Index for May 2010 was as good as the guess that analysts made about sales of existing homes in May. Analysts had guessed 6% growth; actual numbers showed a decline of more than 2%. Apparently, we are in an economic cycle where no one seems to be able to speculate, guess or estimate, with any reasonable degree of accuracy, where the construction economy is headed - up, down, sideways. Some are (and have been) predicting a "double-dip" recession in the residential construction sector. That sector led the country into the downturn in the overall construction sector, and some are saying that the downturn will not end until that sector shows renewed life.

Update to paragraph 2. This morning (June 23), news came out about an "unexpected" turndown in the new home construction sector. So, it is not just "existing" home sales that are down, but sales of "new" homes as well.

3) Yesterday, I did a post about "financing related to the Real Estate Development" sector. Previously on my blog, I've written and posted articles that point to the FACT (not opinion) that the Real Estate Development industry requires "other people's money" - financing for projects. If banks and insurance companies are not lending and if the financial/investment community is unable to place CMBS (commercial mortgage backed securities), then Real Estate Developers (with perhaps the only exception being public works developers (Fed, State, County, City projects) won't a) hire architects to design projects or b) hire construction companies to build projects. Which, in turn, has serious repercussions for sub-contractors, material suppliers, and, yes, reprographers.

4) While I do hear from many in the reprographics industry that things appear to have "bottomed out", I'm still not hearing (or seeing) signs of recovery. I don't think there are any reprographers in the U.S. - (perhaps with the exception of MBE, DBE, WBE reprographers who benefitted from reprographics work generated by projects funded by stimulus money) - who refer to the current recession in the design/development/construction industry as a recession - without thinking that the word "RECESSION" should be replaced by the word "DEPRESSION."