The improved bottom lines of staffing agencies come as no real surprise; before companies rehire employees on a permanent basis, they bring them in on a temporary basis. The question from here is, when does the temporary hiring stop and the permanent hiring start? It's something investors of ManPower (NYSE:MAN), Robert Half Intl. (NYSE:RHI) and the ilk need to know, so they can get off the ride before it comes to a complete stop.

First things first though - a reality check via earnings results.

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Getting Better Every Quarter
Robert Half International may still be well shy of pre-2008's earnings levels, but there's a light at the end of the tunnel. Last quarter's income of 14 cents per share was not only the best for the last seven quarters, it was the first year-over-year improvement since 2007, and the fourth sequentially higher earnings level over the last five quarters. The fact that it was a 'beat' is just the cherry on top.

Manpower is telling the same story. It posted a profit of 62 cents per share for the third quarter of this year, well up from the year-ago level, and the fifth sequential improvement over the last six quarters.

Kelly Services (Nasdaq:KELYA) hasn't yet posted its Q3 numbers, but when it does in November, its numbers should show a similar improvement, as well as a multi-quarter growth trend.

Even Monster Worldwide (NYSE:MWW) - a different breed of stock swimming in the same pool - is seeing a light at the end of the tunnel. After acquiring from Yahoo! (Nasdaq:YHOO) in August, the online job-posting site is expected to earn 1 cent per share when it reports this week. No, that isn't much, but it's the first net profit the company will have garnered since the second quarter of 2009. Analysts expect the company to continue that tepid growth trend into next year.

Makes Sense
Even if it's like watching paint dry, workers are indeed slowly making their way back into the workforce. Historically, there's an upside and a downside to that post-recession, mass rehiring dynamic, at least, for the temporary staffing companies. While the dawn of new economic expansion leads to huge earnings growth rates for the staffing agencies (the upside), that growth rate tapers off - and even become a struggle - as companies start to bring in permanent hires and scale back on temporary employees (the downside).

Thus, the million dollar question is, when is that temp-hire peak going to be in this cycle? After all, you won't want to delay for too long after the sweet spot is history. The answer may surprise you, and even prompt you to hang onto these names for a while after all.

The Same, But Different
It's relatively common knowledge that the demand for temporary staffing peaks shortly after an economic recovery begins; companies need more people to meet growing demand, but don't want to commit to the liability of an official permanent hire. Normally, the temp-to-permanent transition happens within six months to a year after the recovery. This time though, it's been well over a year since the economy made the turn, and temporary staffing is still going strong - and growing. And, there's no real hint that the strength in temporary staffing is going to slow soon.

The industry is in its bizarre sweet spot. Corporations need more manpower, but can't quite justify permanent additions; a tepid rebound and uncertainty about the future tax environment are stoking corporate doubts. Some staffing agency heads suggest that a moderate GDP growth rate of 2% - which is where we're leveling off now - will be just strong enough to justify temporary staffing, but not solid enough to prompt permanent hiring.

The Bottom Line
With economic strength forecasted to stay in that just so-so 2% range through 2013, investors may want to hold on to their staffing agency stocks for longer than they normally might at this stage of the game. (For related reading about unemployment, see How Unemployment Affects You (Even If You're Working.)

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Tickers in this Article: KELYA, MAN, YHOO, MWW, RHI

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