Market Trends for Security Contractors

This article appeared in the Q2 2024 issue of The Californian. 

Employers in the security industry can gain a competitive advantage by integrating market research, global economic outlooks, and industry-specific predictions. Accurate data is particularly important due to challenges like increased demands from clients. They can stay one step ahead by understanding market trends and the broader macroeconomic picture.

Inflation 

The U.S. inflation rate was 3.5% as of March 2024, based on a 12-month percentage change from the year prior, according to the U.S. Bureau of Labor Statistics.

Although the inflation rate is still higher than the Federal Reserve’s target of 2%, that number has significantly dropped from the 9.1% spike in June 2022. With the latest drop in unemployment rate to 3.8% in March, the U.S. economy remains strong, discouraging the Fed from cutting interest rates again until prices decline at a more consistent rate.

Despite wages increasing by 4.5% in 2023, the increase felt like 0.8% with inflation. Economists believe that the elevated rate may explain why many Americans feel dissatisfied with the economy, despite reports of steady economic growth, ongoing wage increases and low unemployment. 

Interest rates

To combat current inflation, the Federal Reserve leveraged interest rates to engineer a ‘soft landing’ and avoid a full recession. Rising interest rates can affect a company’s ability to service debt, especially if it incurs rising costs without a boost in revenue to balance it out. 

Throughout most of last year, the cost of capital was exceeding 5%. Economists report that interest rates are holding somewhat steady, increasing by about 1% between January and July 2023  — but the Federal Reserve predicted decreases in 2024, which set the table for multiple interest rate cuts at some point this year.

Recent job and inflation reports, indicating ongoing pricing pressure and job growth through the first quarter, have pushed the probability of any rate cuts later into the year than initially projected.

Mergers and Acquisitions

‘Dry powder’ describes cash reserves, liquid assets for available use or capital waiting to be deployed in the private equity market. In December 2023, dry powder rose 8% to $2.59 trillion globally, according to S&P Global Market Intelligence — meaning, idle cash is available for use amongst private investment partnerships that specialize in buying and managing companies before selling them.

Merger and acquisition activity started returning in Q3 2023 after a decline since 2019, according to the BSCAI’s M&A Watch Report and Robert Perry’s 2023 white paper on the U.S. Contract Security Market – with both projecting more deal volume in coming quarters.

Building occupancy 

The COVID-19 pandemic forced many businesses to change their policies for working onsite, with remote or hybrid models becoming the norm. Employees reported more productivity and increased work-life balance, while employers have seen the benefits of choosing from a larger talent pool. However, office vacancy rates have spiked.

Before 2020, the quarterly vacancy rate was around 12%, but with COVID-19 that number rose to 15%. As the pandemic slowed by the first quarter of 2023, 16.1% of office space in the country was vacant — and in some markets, vacancies reached up to 30%. Security contractors have stated that trying to scale down or change previous contracts has caused challenges since those written agreements can lack flexibility. 

Technology

Breakthroughs in artificial intelligence are being discussed in the security industry, as those advancements could have a major impact on the economy. According to a Goldman Sachs report, it is estimated that AI tools could drive a $7 trillion increase in GDP while lifting productivity growth by 1.5% over a decade-long period.   

Approximately 300 million jobs could be impacted by workflow changes triggered by AI. Luckily, changes in automated work could only partially impact various job roles by complementing the work currently performed, instead of substituting it.

Researchers predict that jobs requiring physical labor or outdoor work would be less impacted by AI, while administrative personnel and lawyers could experience more of an impact. Additionally, it is theorized that AI advancements could create future employment opportunities.

Read our 2024 Labor Trends Report for more info.