IT Employment Up 10% Over Past Year

Despite the labor-market sagging effects of of our current economic malaise, somewhat surprisingly, overall employment in the IT sector is up a strong 10% year-over-year (2nd quarter '08 compared to '07).

Considering the steep slide in the labor market over the past few quarters, the growth in IT employment represents amazing strength and resiliency, in what is mostly an otherwise dismal period for labor market participants of nearly all stripes. Only a handful of other employment groups (notably health care) have held their own over the past year.

According to the report by the BLS (Bureau of Labor Statistics), unemployment in the IT worker category (which includes virtually all major technology job groups) sits at 2.2% nationwide, far better than the 5.5% overall unemployment rate nationally.

The BLS report doesn't address employment in the Puget Sound region (and the state's data doesn't adequately tease out this group either), but there is no doubt that IT/technology professionals remains an area of strength here too, despite the overall downward trajectory of the regional labor market over the past few months.

With all the major difficulties in the financial sector, it remains to be seen if the strength in the IT/tech group can be maintained, as banks are major employers of IT professionals.

Regardless though, this data should convince all employers of technology professionals, that just because the economy is down, it doesn't mean that employers can be complacent about staying competitive and in building/maintaining programs that attract, motivate and retain this key group of professionals.

Expect a Lengthy Period of Wage "Dis-inflation"

Until this past year, most workers have enjoyed a several-year period of modest "real" (adjusted for inflation) wage growth, as the increase in wage levels have generally outpaced inflation (albeit, by a fairly small margin). That period is now over, and is unlikely to return anytime soon.

With consumer confidence plummeting, business conditions weakening and economic projections declining, we at AHRS expect merit budgets to decrease for 2009, even while inflation continues to increase, creating a "double-whammy" impact on economic value of wage rates.

A few labor force participants in the "hot" skills areas may be able to keep their heads above the inflation water-level, but that's a fairly tiny part of the overall labor force. Experienced technology professionals are the only group that seem capable of staying ahead of inflation right now, with 10% year-over-year job growth and a 2.2% unemployment rate according to recent data (see other post on this topic).

According to its mid-July report, the U.S. Labor Department said the national consumer price index (CPI) surged 1.1% in June, its largest monthly rise since June 1982. On a year-over-year basis, consumer prices grew 5%, the highest rate since May 1991. Many would argue that the 5% official inflation figure greatly understates the impact of inflation on most families, with food, fuel and utility costs rising at a much faster pace than that. Families can forgo the purchase of discretionary items, but no one can escape the soaring costs of basic necessities such as food and gasoline (even if you don't drive, the rising cost of oil is filtering its way into the cost of virtually everything else).

Generally speaking, there is a correlation between inflation rates and pay increase rates, but it's far from a perfect correlation. With many businesses in declining sales and/or profits mode and the labor market weak in nearly all but a few sectors (i.e. tech, health care), there seems no impetus to increase "merit pay" or other pay increase budgets, despite the clearly rising inflation waters.

Typically, inflation occurs because of strong strong economic growth, with more money chasing goods and services than are available at the time, forcing prices to rise. Not this time though, as inflation is being driven by soaring oil and commodity prices, which ultimately extend their reach through nearly all sectors of the economy (except real estate!). Today's inflation, instead of being demand-driven, is more like the "Stagflation" of the early 1980s, when we had high inflation, and slow economic growth.

Expect wage rates to trail inflation for some time.

A "Slow-Motion Recession"?

The above quote is from chief United States economist for Lehman Brothers, Ethan Harris. He was referring to what he sees as the "Chinese water torture" type of recession. In todays NY Times, he goes onto say: “In a normal recession, things kind of collapse and get so weak that you have nowhere to go but up. But we’re not getting the classic two or three negative quarters. Instead, we’re expecting two years of sub-par growth. Growth that’s not enough to generate jobs. It’s kind of a chronic rather than an acute pain.”

Let's hope he's not right, but I unfortunately we at AHRS believe he is. So far in the Puget Sound region we haven't gone into recession, but there is no doubt the economy and job markets have slowed. That said, here are some factors in the region that could have a long-term (>1 year) impact to our area:

• A weak real-estate market (but still way stronger than more major cities) that creeps its way into many areas of the economy: job losses, illiquid real estate assets, sliding home equity, increased foreclosures, etc.
  
• A weakened labor market. In the past few months technology and aerospace employers have continued to add jobs to the area economy, but alone these industries can't overcome the weakness of rest of the regional labor market. Aerospace may well drop off the list of net hiring in the near future.
  
• Troubles at WAMU (and now Starbucks) lead to even more layoffs and office vacancies, not to mention the investment losses.
• Record fuel prices and airline capacity reductions may well lead to slower and/or delayed orders at Boeing, which would have a rippling effect through the area.
• Local investors investing in the region (or anywhere) are hurting (check out recent stock prices for Boeing, WAMU, Blue Nile, Starbucks, etc.). People have shrinking investment accounts and feel less affluent, regardless if they hold onto their stock (only "paper" losses so far). As a result, of course, they spend less.
  

And these are just a few of the factors I can reel off the top of my head. I'm sure there are others. So, while I know I'm sounding glum, the sum total of what's happening in the economy and labor markets in the region are not pretty, even if it's less ugly than in many other parts of the country.

At least the weather has improved lately!