IT Job Market Update : Have we hit the bottom of the IT jobs market? 6 reasons I think we have

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In my articles throughout this year, I’ve detailed how the IT jobs market has cooled from the peaks of Recruit-a-mania of 2021/22 to the current low activity level. There is now a far greater supply of candidates and IT Job volumes are way down with half the number of IT jobs ads on compared to the 2021 peak. So, it’s unsurprising that we are frequently receiving large volumes of applications. And certain candidates are becoming more negotiable on rates, though nowhere near as desperate and flexible as previous, more severe downtowns.

The question I keep getting asked, is have we hit the bottom or is it going to get worse?

The IT sector is suffering more than the rest of the economy for 3 reasons:

1. Soaring inflation resulting in high interest rates

The prospect of ever-increasing funding costs accompanied by a sharp decrease in consumer sentiment sent a shiver down the spine of most CFOs around the globe, and they pulled the reigns in unison. The cost of investing in complex technology implementations is high and the benefits generally take time to materialize, whilst the savings from stopping projects are often immediate and large. So, it is unsurprising that tech was affected by spending cuts quickly and broadly.

2. A pullback from a period of high tech spending in response to the pandemic

As the pandemic unfolded, most businesses rushed to increase their ability to interact with the customers online, resulting in the biggest of tech spending booms. When much of the heavy lifting of moving to SAAS & cloud based systems was done, the market paused for breath. We initially saw the Nasdaq firms downsize en-masse, and in Australia, many of the large players followed suit. When the pressure arrived to trim costs, bloated tech budgets were amongst the first items hit.

3. A massive increase in the cost of labour.

With the huge demand for tech resources, the cost of labour shot through the roof and has largely remained there, resulting in cost blowouts for many organizations.  The increased costs diminished the ROI for many projects, both in train and planned.

So what are we seeing now?

Firstly, there is a dearth of major projects underway and thus there is a massive oversupply of PMs and BAs. We recently recruited a Program Manager and frankly, it was an embarrassment of riches with a large pool of candidates who were highly skilled, motivated, and somewhat flexible on rate.

For the more technical roles, most good candidates are still easily finding work but are no longer naming their price, however, there has been little downward movement on rates. I was speaking with a customer this week who has over 100 contractors on his project (no, they’re not all ours) and he said outside of PMs and BAs he has seen no movement in pricing….. and even the PMs and BAs haven’t moved that much.

There are still areas that are short of quality candidates: Site Reliability Engineers are in miserably short supply, Data Scientists aren’t much better and Modern Workplace Engineers, Cyber Engineers, etc. are still thin on the ground.

We’ve just released our Salary Snapshot (Spring/Summer 2023-2024) which reflects the changing market conditions. The bottom end of most salaries and rates remains unchanged. However, as the crazy top-of-market demands from candidates are no longer tolerated, the upper end of most contract rates ranges have contracted by a handful of percent. Permanent Salaries have been less affected.

So why do I believe it’s the bottom of the cycle?

Firstly, let me say that I’m basing this prediction on the belief that the current geo-political situation will not deteriorate.  I’m hoping that cooler heads will prevail – if they don’t, that’s a whole different discussion.

The following factors all suggest that downward pressure on the market has now eased, the market will remain a little flat for some months but will not reach the depths of the downturns of the Dotcom Tech Wreck, GFC, or Covid:

    1. Interest rates and inflation, in Australia and elsewhere, are now forecast to have almost peaked – with the tightening cycle almost complete. Westpac’s Chief Economist Bill Evans recently stated, ‘It seems that the ‘hurdle’ for a further rate hike will be high and certainly not consistent with our current forecasts for inflation.’ Though, any surprise inflation data could change the situation.

    2. The Aussie Dollar has devalued against the USD by almost 15% over the last couple of years and by more than a third over the last decade, whilst in the last 8 months it’s down 8% vs the Euro and 11% vs the Indian Rupee, making Australia comparatively cheaper as a global tech destination and improving our attractiveness for certain export related sectors specifically, education, tourism, mining, etc.

    3. New immigrants seem more flexible on rates than local candidates, providing employers with a lower cost, high-skill option. The hyperinflation of rates and salaries is long gone (see our Salary Snapshot). This is providing more certainty for those planning projects.

    1. The IT cycle is now almost 18 months past its peak. Based on our observations of 3 previous major downturns, this is normally the timeframe where businesses commence looking at returning to major tech investments.

    2. If we use the Nasdaq index as the barometer for the health of the global tech industry, then things look promising. Driven by optimism over the potential of AI, the market has soared over 30% this year….. making up most, but not all of its 2022 losses.

    3. The IT sector is frequently the first to suffer a downturn, however, it’s also one of the first sectors to bounce back as businesses look to improve productivity and find a competitive edge.

So whilst we are not seeing many green shoots at the moment, I’m confident that the market is at its low point. I’m looking forward to observing a gradual recovery, though not a rapid one in 2024.

For employers, the current market represents a great opportunity to attract high quality talent with moderate levels of competition. It’s a great time to be hiring – let’s see how long this situation lasts.