I still get plenty of job ads and recruiters begging me to jump ship, so in so far as that microcosm of the market goes, I don't think it's all that dire right now.
But what you do as a contractor, I don't know. I know some guys who jump back to perm in case of contract difficulties, but employers are wise to hiring people who used to be contractors in a downturn, as they may well just jump ship as soon as things pick up.
All in all, recessions are crap but rarely devastating for engineering. For 2008, the statistic was 1 in 11 engineers out of work, which is "bad" but that's something that can be managed. (Especially if you look at general unemployment being about 1 in 25, to put that figure in perspective.) Either have a good emergency fund and ride it out, or have an insurance policy that can pay out (though these tend to be expensive for contractors.)
The jobs aren't gone (well, not usually), but employers are more cautious during a downturn. So, it's just patience, picking up odd jobs here and there.
I guess it's just the risk of being a contractor - it's paid off by 2x higher pay per hour though.