IT contractor demand index fell in August to financial crash level

IT contractor demand via agencies took a surprising slip into the red in August 2019 -- a negative growth reading previously only seen recurring during the credit crisis that brought down Lehman Brothers.

In fact, the current index score of IT contractor demand -- 49.9 -- looks more like the consecutively negative readings recorded between June 2008 (49.2) and August 2009 (48.5), showed its compilers the Recruitment & Employment Confederation (REC).

Other than this 14-month financial crash period, which included a record low of 31.0, the only other time of late when demand for IT skills on a temporary basis went into reverse was in Q2 2012.

'Financial crisis'

A REC spokesman confirmed yesterday: “The last time that [growth in demand for IT contractors] went negative was in May 2012 – [but] only for one month, and then before that, during the financial crisis.”

In May 2012 and in August 2019, the REC’s IT contractor demand index stood at 49.9, just behind the 50.0 growth threshold which the confederation assigns.

Further like then and also now, regulation of the temporary workforce was impossible to disregard as a potential culprit. In May 2012, it was the AWR. Today, it’s IR35 reform.

'Monitor IR35 reform's impact'

Hinting at this to ContractorUK last night, REC’s policy director Tom Hadley said it would be “important to monitor the impact” of IR35 changing -- seemingly because growth in demand for the very workers it affects has now turned negative for only the third time in a decade.

“[In spite of the] IR35 tax changes,” Mr Hadley reflected, “we expect the IT contractor market to remain strong, and to continue providing businesses with fast access to key technical skills.”

The REC spokesman also sounded positive, saying that although IT contractor demand ‘dropped slightly’ in August (to 49.9 from 51.4 in July), the drop follows seven years of  “continuous growth” for IT freelancers.

'Need to rebuild confidence'

Nonetheless, end-clients are now in ‘desperate need’ for “clarity on Brexit outcomes,” warns James Stewart, vice-chair of KMPG which co-authors the REC’s Report on Jobs.

“[They need this clarity] to re-build confidence in the jobs market,” he said. “And [to] be able to make more informed decisions on their long-term hiring plans.”

Neil Carberry, REC’s chief executive said: “There are still great opportunities out there for those looking for a new job and a boost in earnings."

'Things getting harder'

He added: “But all this rests on business confidence – the confidence to invest, to hire someone, to try something new – and it’s clear that things are getting harder.”  

In August 2019, only six IT contractor skills were in short supply when pitted against demand -- Analysis, Automation Testing, Development, CAD, IT and Technology.

Except for CAD, those skills were scarce for permanent IT jobs too, alongside CNC, Cyber Security, Data, Development, Digital, GDPR, Software and Software Engineering.

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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