IT Payrolls Mirror IT Value

By Eric Chabrow
Information Week

IT services, software companies see gains, hardware manufacturers losses in U.S. employment.

February 3, 2006

An accepted axiom these days is that the value of IT can be found in software and services, rather than hardware. That's true, too, for payrolls at companies providing IT products and services.

IT services companies last month added a seasonally adjusted 3,200 workers to their payrolls to employ a total of 1,341,700 people, up 64,200 or 5% from January 2005, the Labor Department reported Friday. However, employment among computer and peripheral equipment makers slipped by 2,900 in January, falling to 202,600. That's 1% lower than a year earlier. As a comparison, overall non-farm payrolls rose 1.6% in the past 12 months.

Scott Brown, chief economist of the stock brokerage firm Raymond James & Associates, says the drop in payrolls at hardware makers is likely caused by the increase of parts being manufactured abroad, though the final assembly of computer products still takes place here close to the final market. "Anything that can be put in boxes created overseas and shipped here certainly [results in] disinflationary pressure in the U.S.," Brown says. "But services, where you have to have that one-to-one interface, is still going to be a premium."

Because of the way it collects and analyzes data, the government doesn't report payrolls for software companies when it releases other employment data the first Friday of each month. But for 2005, total employment at software companies averaged 238,800 during the year, a yearly gain of 1.2%. December-to-December growth was greater, rising to 243,600 in the last month of 2005, a 3.4% rise from a year earlier.

But other sectors among non-manufacturing IT companies showed weakness last month. Payrolls at Internet service providers, portals, and data processing companies slipped by 900 to 377,400. Internet publishing and broadcasting payrolls also fell by 900 in January. Both sectors' employment levels stood a smidgen lower last month than they did one year earlier.

All 2006 figures and those for December 2005 are preliminary, and are seasonally adjusted except for software company employment. Each month the government samples some 160,000 businesses and government agencies covering about 400,000 individual worksites. The sample includes about one-third of all non-farm payroll workers.