A Publication of WTVP

Let me first admit I am not a financial expert in any way. I am able to lose money almost as quickly as my broker’s recommendations. That has not been hard to do in the recent market, especially the tech sector. But has the market been as hard on the staffing sector?

In a nutshell, market conditions for staffing companies are the worst they have been since the 1970s. Many analysts expect continued tough times through the rest of the year with a rebound in 2002. They assume we may have neared a bottom during the third quarter, in part because of the September 11 attacks on the U.S. The market then was already soft for staffing services, with the attacks cutting out several additional days of business.

Year lows for share prices were the norm in the sector during the third week of September, the same week that saw initial unemployment claims hit a nine-year high, at 450,000 workers. Non-farm payrolls fell by nearly 200,000 jobs—a loss rate not seen since February 1991. As expected, the market fell sharply that week.

Furthermore, August constituted the 11th consecutive month of a decline in volume at staffing companies. August saw an 11 percent drop in temporary labor, compared with one year earlier. September and October figures are not available, but probably will not be much better.

In addition, earnings for the quarter were expected to be about 50 percent on average from one year ago. They were right. The numbers on some of the local companies are tough. Manpower posted earnings of 48 cents a share (down from 70 cents one year ago).

Many well-established companies in the sector may now be attractive long-term investments. The 1990-91 recession saw a surge in staffing stocks six to nine months before industry conditions began to improve. Some analysts believe we are in that range now. At the time of this article, Manpower’s and Kelly’s stocks have surprisingly stayed basically the same from one year ago at $32 and $23 per share, respectively. Spherion, however, dropped from $12 to $8 a share over that time, and Rehab went from $35 to $23.

So when might investors expect a turnaround in sector stock prices? It has been suggested staffing companies focused on light industrial sourcing may be among the first to rebound. That may be a good bet considering how beat-up manufacturing companies have been of late. Others see skill focused staffing companies (engineers, computer related, etc.) to be the first to respond. Still others say companies that have been more aggressive at trimming expenses will gain more from an economic recovery. Either way, many analysts think investor sentiment is likely to improve by year end, with business picking up by the third quarter of 2002.

As always, though, the analysts have hedged their bets. They mention there are still plenty of clouds in the sector’s outlook. Moreover, if the expectation of a recovery in the second half of 2002 gets pushed into 2003, they think it is a good bet shares will revisit their lows. IBI