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Consulting as a leading economic indicator

Thursday, August 20th, 2009 by Nigel Jones

The IEEE has a rather depressing news release out that claims that EE unemployment more than doubled last quarter to a record high 8.6%. The previous quarterly record was a mere 7% in Q1 2003. Interestingly the unemployment rate for all engineers was a mere 5.5% which suggests that EE’s are taking the brunt of engineering unemployment. If you are one of those unfortunate enough to be axed, then what’s the employment outlook for you?

Well I’m no economist and I certainly don’t have access to, or interest in, reams of economic data. What I can do is give you my micro-economic perspective. Over the 15 years I’ve been a consultant I’ve developed the notion that consultant activity is a leading economic indicator. That is, when companies need engineering help, but are unsure whether to take on employees, then they turn to consultants. Conversely when companies need to cut costs, the first to go are consultants and contractors. In short, consultants are the first to go in bad times and the first to be retained in good times. This hypothesis seems reasonable to me, and broadly reflects my experiences. So with this as a background, what can I tell you about the current economic state of affairs?

Well, firstly the current ‘slowdown’ came on so hard and so fast that my sense is that consultants and employees basically bit the dust simultaneously. OK, so what about the upside? Am I seeing an increase in demand for my services? In short – no. Having said that I almost never see an increase in demand for my services in July and August for the simple reason that too many people are on holiday. Notwithstanding this, my sense is that it is still very quiet.

So am I pessimistic? Actually – no. A large slice of the stimulus money has been funneled to organizations such as the NSF, which are only now getting around to doling out various grants. Thus I expect this to start having an effect on EE demand soon. I also have the sense that a lot of companies having weathered the financial storm are now looking ahead to see how they can best exploit the upturn when it comes. If I’m right, then the phone should start ringing again in September. I’ll post an update around the end of September and let you know if I’m right!


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