The Professional Services industry in the United States realized record growth of revenue and headcount in both 2021 and 2022. That growth was fueled by increased demand for services correlated to low interest rates and COVID-related economic stimulus. Unfortunately, the market cooled off considerably in 2023 as inflation and higher interest rates had a negative impact on client demand. While 2024 has not yet produced a significant increase in the industry's growth rate, economists project that the second half of 2024 could spark sector growth.
Professional Services job openings in the United States in 2023 totaled 459,600, which was an 11% decline year-over-year. According to a study by Korn Ferry, bill rate pressure and a decrease in client demand topped the list of the challenges that firms faced in 2023. Nearly 60% of survey respondents cited decreased demand and bill rate pressure in their top three “headwinds” for 2023. That said, over 50% of respondents described their firm as being “somewhat optimistic” for improved growth in 2024.
In 2023, Deloitte, Ernst & Young, KPMG, and PwC eliminated more than 9,000 consulting positions through multiple rounds of layoffs throughout the year. Those layoffs were primarily in the firms’ largest markets in the US, UK, Australia and Canada. In March of 2023, Accenture announced plans to cut 19,000 jobs (2.5% of its global workforce) over an 18 month period. Just last week, Deloitte announced that it will reduce its primary business units from five to four over the next year.
With all of that negative news, how could the industry realize improved growth in the second half of 2024? Through interest rate cuts. Federal Reserve officials have indicated that there will be three interest rate cuts in 2024 of one quarter percentage point each. Assuming the central bank makes good on that plan, these will be the first interest rate reductions in four years in the United States. Those rate reductions combined with a presidential election in November, could drive optimism and set up for a return to growth in the second half of the year.
In early March of 2024, Fed Chair Jerome Powell testified to Congress about the state of the economy. Powell remarked, "We believe that our policy rate is likely at its peak for this tightening cycle. If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year." With that news, the stock market surged as analysts revised their projections for the second half of the year.
The Professional Services industry hit $6.382 trillion in 2023 and is expected to grow at a 6% compound annual growth rate through 2026. While this rate is lower than the double-digit growth of 2021 and 2022, the industry is expected to stabilize and resume its historical growth trajectory. Firm leaders need to develop a strategy for capturing the increase in demand that is likely in the second half of 2024.
