The hiring of temporary workers has been a leading indicator of improvement in jobless claims during past recessions. Investors are wondering if this recession will yield the same result, or if the change in hiring of temporary workers signals something different. The January jobs report from the U.S. Bureau of Labor Statistics said that the unemployment rate fell from 10.0-9.7%. The same report also said that temporary help services "added jobs." This statistic continues upon the same path of the prior months between July and December 2009, where we saw an increase of 166,000 hired temporary workers. Do these data points indicate a bridge to healthy job creation? (For more, see Economic Indicators: Overview.)
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2010 Recovery ... A Little Different
In the past, an increase in hiring of temporary workers signaled an increase in the hiring of permanent workers. This time seems to be a little different, as jobless claims have risen in six of eight weeks in 2010, but the hiring of temporary workers continued to trend higher through January. It appears manufacturing companies, unsure about demand, are hiring temp workers, but not making them permanent. The expectation is that this recovery for temp workers will follow the path, albeit at a faster pace. From 2002 and 1991, it took between 22-31 months to create 250,000 temp jobs, while the 2009-2010 recovery has seen similar amounts of jobs created in only four months (October-January). (For more, check out A Review Of Past Recessions.)
Playing a Better Temp Jobs Picture
Investors who believe that the permanent employment picture is not about to improve can play this thesis by investing in temporary worker firms. Robert Half (NYSE:RHI), a leader in temporary placement for the finance and accounting industries, reported fourth quarter 2009 results in which each of its staffing divisions reported sequential revenue growth. Similarly, Kelly Services (NasdaqGS:KELYA) posted strong fourth quarter results due to an improved temp worker picture, and that trend of temporary staffing hiring continued into 2010. Manpower (NYSE:MAN) has a strong presence in Europe, specifically France which has shown a strong resurgence in temp workers. Overall, 10% of its revenues come from the U.S. Additionally, MAN has a job search business. Taken together, as the employment picture improves globally, more searches and placements will benefit from its business model. Volt Information Sciences (NYSE:VOL) provides staffing services in the U.S. and Europe. The company focuses on staffing in the technology field - a segment of the economy which has been growing, as firms begin spending capital on improving technology infrastructure. While investors await the results from the restatement of earnings, the improvements in the technology temp workers should benefit the company.
The Bottom Line
Despite whether we see an improvement in the employment picture, the hiring of temporary workers as a way to remain flexible as fears of a struggling economy persists seems to be a constant trend in this recovery. Temp firms should benefit from this trend. RHI executives, during the company's recent earnings release commented that this recovery is non-discriminating in terms of which types of temp workers are being sought. Typically in a downturn, the admin side gets cut first and most, and usually comes back first. This time it seems firms cut "indiscriminately" and deeply across the board and are seeking all types of workers at the onset of this recovery. As such, specialized as well as generalized firms should benefit equally. (For more, check out What You Need To Know About The Unemployment Report.)
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