IT Services Succumb to Recession

Payrolls among IT services firms experienced their biggest one month decline in more than five years but employment levels at these companies remained higher than they were a year ago.

According to the employment report issued Friday by the Bureau of Labor Statistics, payrolls at so-called computer systems design and related services firms fell by 2,900 to 1,428,500 in December. It’s the biggest drop since August 2003, when payrolls at IT services firms fell by 3,400. It was only the second decline in IT services payrolls since May 2005; this past March, the sector saw payrolls dip by 2,200 workers.

The loss of employment in the IT services sector shouldn’t be surprising considering the battering the economy is taking. Yet, IT services firms are performing much better than the rest of the economy. In 2008, employment among IT firms grew by 2.7% or 37,100. As a comparison, overall nonfarm employment plunged by 524,000 in December and nearly 2.6 million for all of 2008, a 1.9% drop.

As the recession continues, expect to see payrolls at IT services firms to continue to contract, but only modestly. Businesses rely on IT to function, and in an economic turndown, companies more likely will turn to IT services firms to keep their operations running before they hire full-timers to take over.

Photo: AP

IT Industry and IT Jobs:The Correlation is Limited

A report this weekend noted that growth in IT will lag other sectors, at least in Indiana. I don't doubt the report, but remember: the health of the IT sector (or lack thereof) doesn't mean fewer IT jobs in the economy. Too often they're confused.

Michael Hicks is the executive director of Ball State University's Center for Business and Economic Research, and in his posting on the website of the Muncie, Ind., newspaper The Star-Press, wrote the center foresees a modest rebound in the second quarter, with a few exceptions:

Information technology and construction will continue to lag in the recovery. This represents lagging business investment, primarily in new plant and equipment.

Though the article discusses employment conditions caused by the recession, it never makes a direct link between a decline in the IT sector and IT jobs. Still, the reader could infer that, and such a conclusion would be wrong.

Most IT jobs aren't in the IT sector; they're in regular businesses, and though many IT pros will lose their jobs in this recession, business-technology employment will outperform other occupations, mostly because companies need them to remain functional.

But too often those who should know the difference don't. A posting this summer on Slashdot.com cites government research to contend that IT jobs were getting harder to come by. The Slashdot posting was based on an InfoWorld article that confused the information sector, as defined by the U.S. Bureau of Labor Stastistics, with IT jobs. The information sector, according to the BLS, consists of industries such as broadcasting and publishing.

According to a 2006 BLS analysis, fewer than 3% of the jobs in broadcasting and publishing are held by IT professionals. Other "information" industries also employ relatively few IT pros. Among telecom employers, for instance, a mere 6.4% hold enterprise IT jobs. Not surprisingly, a majority of software publisher's employees have IT jobs; yet, more than 40% of positions at the like of Microsoft, Oracle and their smaller rivals are held by non-IT workers.

Here's what I wrote last summer on my CIO Insight blog :

Each month, the government conducts two employment surveys, one of business establishments and the other of households. The establishment survey, the one InfoWorld cites, doesn't break down employment by occupation but by industry. The household survey—the one used to determine the national unemployment rate—focuses on occupations.

Analyzing the household survey ... shows a steady rise in IT jobs. Last quarter, IT employment reached a record high of nearly 4 million, up about 10% for the past year.

Those IT employment numbers haven't changed much over the past few months.

Sure, many IT pros will be caught up in the layoffs brought on by the recession, especially in financial services, a big IT employer. Yet, as an occupation class, business-technology workers will experience fewer jobs losses, and will more likely be able to find jobs in the coming months than many of their unemployed neighbors in other occupations, regardless of the health of the IT sector.

Recession Be Damned! IT Services Jobs Rise

American businesses cut 533,000 payroll jobs in November, the biggest monthly job loss in over 30 years as nearly every sector eliminated jobs. But one sector bucking this trend—computer systems design and related services firms, commonly known as IT services—increased payrolls last month.

In November, an analysis of U.S. Bureau of Labor Statistics data by The IT Job Analyst blog shows, IT services firms added 2,700 jobs. IT services firms employed in November some 1,435,900 people, a record high. Since November 2007, employment at IT services firms rose by 48,400, or 3.5%. As a comparison, all American employers shed 1,870,000 or nearly 1.4% from their payrolls in the past year.

In past recessions, IT services firms suffered along with the rest of the economy as business leaders didn’t highly value information technology. From March 2001 through August 2003, IT services firms payrolls shrank by 18.4% or 248,300 jobs.

Why is this recession different? Companies can’t function without IT. Today, IT know-how and the efficiencies technology brings business are among the last thing companies forfeit in troubled economic times.

Here’s what Jerry Luftman, a Stevens Institute of Technology IT professor who surveys CIOs for the Society for Information Management, told me earlier this week (read a fuller version of Luftman’s observation at our previous blog posting):

“This economic downturn is very, very different from previous ones. Today, companies are going to IT and asking them for ideas as to how IT can be leveraged to reduce the costs of other parts of business.”

But the recession is having a mildly negative impact on IT services employment. Payroll growth is slowing. A year ago, IT services payrolls rose by 5.8% or 76,300 jobs. Since January 2005, IT payrolls have consistently risen each month, except for one, this past March. Few other sectors can make that claim.

The computer systems design payroll numbers reflect the relative strength of IT employment when compared with the rest of the economy. The national unemployment rate jumped 2 points to 5.7% in November, a 15-year high. The government doesn’t furnish a separate IT jobless rate. It does release specific occupation figures on a quarterly basis, however. And, my analysis of those numbers from the third quarter shows IT unemployment hovering near record lows. In the third quarter, IT joblessness rose one-tenth of a point to 2.4%, with 4,010,000 Americans employed in the profession, a record high.

When the current quarter's employment figures become available next month, don't expect IT unemployment to remain so low. IT professionals aren't immune from this recession. But it would be surprising if IT joblessness came anywhere near the levels of overall unemployment. If it does, our nation would be in even worse shape than it is today.