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Tech sector job cuts up 18.8% so far in '05

'Job creation simply has not materialized,' says John Challenger

By Todd R. Weiss
October 18, 2005 12:00 PM ET

Computerworld - Technology sector job cuts for the first three quarters of the year were up 18.8% over the same period in 2004, according to Challenger, Gray & Christmas Inc., a global outplacement company.
For the third quarter of 2005, U.S. businesses in the technology sector cut 41,439 jobs, an increase of 4.3% over the 39,720 jobs cut in the previous quarter, according to the Chicago-based company (see "Tech job cuts show Q2 dip, study says"). For the first three quarters of the year, job cuts in the tech sector are up 18.8% over the same period in 2004, with a total of 140,696 jobs lost. That compares with 118,427 jobs lost in the first three quarters of last year.
Unlike other U.S. industries that have seen cuts -- even as new jobs were being added -- the tech segment has lost jobs without a similar rate of hiring to offset the cuts, John Challenger, CEO of Challenger, Gray & Christmas, said in a statement.
"The gradual slowdown in job cuts would be more encouraging if it were complemented by a rise in hiring, but job creation simply has not materialized," Challenger said. "The industry may indeed be recovering when it comes to revenue, profits and earnings, but certainly not when it comes to employment."
There are some promising indicators, according to Challenger. The number of cuts announced between July and September was 24% lower than the 54,701 job cuts reported during the same period in 2004, according to the survey.
The data indicates that in the past 12 months, the U.S. economy has created nearly 2.2 million jobs, but only about 3,000 of those have been added by computer and communications equipment manufacturers. Meanwhile, employment among manufacturers of semiconductors and electronic components has fallen by 11,300, while employment among makers of electrical equipment and appliances has dropped by 11,800, according to government data.
The telecommunications industry, which saw the biggest drop in job-cut announcements so far this year -- down 82% from 35,079 cuts in the first quarter to 6,428 cuts in the third quarter -- has added only 1,400 workers in the last year, according to Challenger.
The only significant tech-sector job growth has occurred in the professional services area, where employment in computer systems design and related services grew by about 30,000 since September 2004. Management and technical consulting service firms also added about 29,000 jobs during that period.
"Spending on new software, IT services and computer equipment is up this year and expected to increase again in 2006," Challenger said. "New Internet ventures are being formed,and online advertising is up 34% over last year. However, one significant question remains: Where are the new jobs?"
Continued industry consolidation helps explain why this year's tech job cuts are still outpacing 2004, even though the tech sector is in a much stronger position, he said.
Rising energy prices have probably not yet contributed to the latest results, said Challenger, Gray & Christmas spokesman James Pedderson. "It's too early to tell if that will happen and if it will affect tech companies," he said.
Challenger tracks overall U.S. employment numbers using company news releases, news stories and government job cut reports. The company issues a special tech job report once per quarter.

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