Architecture firms reported an improvement in business conditions for the second consecutive month in September, as the Architecture Billings Index (ABI) climbed to a score of 51.6, reflecting the strongest growth in nearly two years.

With the general economy continuing to show signs of improvement, there is hope for a more sustained period of recovery for the profession. Inquiries into new work remained strong this month, and fewer firms reported a decline in the value of new design contracts.

However, architecture firm billings aren't improving in all regions of the country. Just like the prior month, firms in the South and West regions are reporting growth, while firms in the Northeast and Midwest are reporting weaker firm billings.

After nearly five years of declining billings, firms in the West not only reported billings growth for the second month in a row in September, but also had the highest score of all four regions.

By firm specialization, improvement is broader based, with firms of all specialties except commercial/industrial reporting higher firm billings in September. Firms with a residential specialization recorded their highest scores in nearly seven years, as the demand for rental housing is increasing, interest rates continue to fall, and the mortgage crisis recedes further into the background. Commercial buildings are overbuilt in many areas, and firms specializing in that sector may still see some softness until they are filled.

The general economy showed some positive signs in September, as the unemployment rate fell below 8 percent, to 7.8 percent. Payrolls increased again, but gains were relatively modest, with 114,000 jobs added. Construction employment remains essentially flat, while architectural services employment shed 300 jobs in August (the most recent data available) after growing in each of the last six months. However, because this data isn't seasonally adjusted, the decline is likely due to the typical fall slowdown.

The Federal Reserve recently released the latest issue of its Beige Book report, which shows a moderate economic expansion across much of the United States in recent weeks. Residential construction activity is increasing, with multifamily construction particularly strong in the Boston, New York, Atlanta, Chicago, and Dallas districts.

Many districts also are reporting that their inventories of existing homes are shrinking. Just as the ABI data for this sector demonstrates, the commercial real estate market for office buildings has been weakening in districts located in the Northeast, although other areas show more stability. The industrial real estate market has shown greater improvement recently, particularly in the New York, Philadelphia, Cleveland, and Atlanta districts.

As architecture firms continue to emerge from the economic downturn, the need to hire new employees is rising. Forty-four percent reported that they have been looking to hire employees this year. Just over half of firms located in the Midwest have been hiring, as have nearly three-fourths of firms with annual billings of $5 million or more.

The firms that have been hiring recently—and haven't had trouble finding qualified applicants— mostly have been looking to fill mid-level positions, but 40 percent say they also are looking to fill senior technical or managerial positions.

Only 14 percent of firms report that they are hiring but are having trouble finding qualified applicants for open architecture positions, mainly because many applicants lack the technical skills necessary for the job openings. Forty-eight percent reported that the applicants lack appropriate job experience, and 45 percent feel that there just aren't enough qualified applicants currently on the market.

Here is what some participants are saying:

•"Some encouraging signs of an uptick: Quite a few potential clients who contacted us a year or two ago have resurfaced. Potential clients are also beginning to mentionwanting to take advantage of lower construction costs and loan rates before things pick up." —Seven-person firm in the West, residential specialization

•"We expected this to be a breakout year, and while our billings have been mostly strong, we have had to work extremely hard to maintain a backlog." —37-person firm in the South, institutional specialization

•"Work is extremely slow, not many new projects on the horizon. Expecting more after the election and turn of the new year." —Two-person firm in the Northeast, commercial/industrial specialization

•"(There is) continued weakness in the K12 market in eastern Missouri. (There are) no plans to proceed with new projects for the first half of 2013 or beyond. Depressed home values lower the assessed valuation of the district. State funding of operations is also a concern." —13-person firm in the Midwest, institutional specialization.