Considering the scope of cuts the Federal Government is expected to make in the next 6-12 months, it’s not shocking that companies that do a lot of contracting are cutting back. I think most of us know that a lot of companies cut stupid when they cut, at best using a club when a scapel would be better and at worst cutting productive members of effective departments because someone higher up the chain screwed up and the company is in trouble.
Moving away from contracting is a great opportunity for the government to cut budgets without sacrificing services. As noted in this thread, contractors tend to be much more expensive than employees.