IT Staffing Report: Oct. 8, 2015

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Updated forecast shows IT staffing market in the US reaching new highs, pace of growth moderating

As all things digital continue to permeate the enterprise to an ever-greater degree, employment in technology has expanded rapidly in recent years, creating a conducive environment for staffing in the segment. According to our recently updated market forecast, that growth is projected to continue at least through next year, when we believe the IT staffing market will reach a record scale of $28.9 billion. While representing fairly healthy annual growth of 6%, the rate of expansion has decelerated from the double-digit growth witnessed in the few years following the Great Recession, as seen in the graph below.

US Temporary IT staffing market annual growth rate, historical and projected

Assuming the mix of skills holds fairly constant, year-to-year fluctuations in market size are driven by two factors: price and volume. While trends supporting growth in the latter appear to remain fully intact, the former is something of an open question. In a market where there is an apparent overabundance of demand relative to supply, the price of the good in question is driven higher. However, based on our proprietary industry benchmarking surveys, bill rate growth in IT has not kept up with other segments of professional staffing.

So, what is restraining bill rates in IT? One likely factor is the relatively high penetration of Managed Service Providers (MSP) and Vendor Management Systems (VMS) in the IT segment, which have the effect of moderating bill rate hikes. (An MSP manages a client’s contingent workforce program and a VMS is the technology that facilitates such management.) Also coming into play are competition from offshore solutions providers in lower-cost regions, as well as the impact of foreign tech workers brought into the US through the H-1B and related visa programs.

In response to pricing pressure exhibited by many of the largest users of IT staff augmentation, one strategy that has proven effective in maintaining gross margin has been to increase the focus on selling to mid-market customers. Penetration of MSP and VMS is far lower in this tier, and as they are much more likely to be privately held, the quarter-to-quarter emphasis on cost control is not as present. Historically, these smaller buyers have been less viable targets because their utilization of technology tended to be relatively limited. However, to remain competitive in their industries, such organizations have increasingly embraced enterprise technologies such as data analytics, mobility, cloud and cybersecurity, boosting their IT staffing needs to a scale that makes them attractive customers.

Before closing, we should acknowledge the most significant risk to material underperformance of our growth projections: an economic downturn. The current US expansion commenced in July 2009, and has now lasted longer than the average of the last five such periods dating back to 1980. While we believe the likelihood of recession between now and the end of 2016 remains fairly low, recent employment and economic data have shown some weakening trends. Thus, while managers may build continued growth into their baseline expectation for the purpose of strategic planning, it would be prudent to remain vigilant in monitoring leading economic indicators.

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