Analysis: Growth in temp jobs hints at wider recovery

By Nick Zieminski

NEW YORK (Reuters) – Demand for temporary workers is broadening to professional categories like technology and engineering, offering evidence that a long, slow U.S. jobs recovery may finally be getting some momentum.

An uncertain economic environment continues to drive sales at temporary staffing providers, as employers look for flexibility. Since placement of contingent workers is typically a leading indicator of labor trends, strong demand suggests the wider labor market may be turning the corner.

In areas such as engineering, employers now compete for candidates, which could soon allow staffing companies like Manpower Inc and Robert Half International to boost rates, lifting margins.

“Overall demand remains very good,” said Tig Gilliam, head of Adecco’s North American operations. “Clients got lean, but their business has been strong enough that they need talent, and they’re looking for temporary and contract workers first, then temp-to-hire, then permanent positions.”

Nonfarm U.S. payrolls jumped 216,000 last month, the biggest increase since May, and the unemployment rate fell to a two-year low of 8.8 percent.

The government report showed temporary payrolls up by 28,800, a faster pace than in February. The percentage of temps in the workforce rose to 1.73 percent, highest since 2008 but still below a record high of 2.03 percent in 2000.

Factors to watch in coming months include the effects of $4-a-gallon gasoline and Japan’s earthquake and nuclear crisis, Gilliam said. Some Adecco clients, such as auto companies, have cut back on temps because of disruptions to their supply chain, while others have taken on more temps because they’re picking up work from Japan.

“There’s still a lot of uncertainty so temp usage continues to go up,” said Roy Krause, CEO of SFN Group Inc. “Permanent placement in finance, accounting, mortgage, IT even, is much much stronger than people anticipated,” he said.

At March’s rate of job growth, payrolls will take almost three years to reach pre-recession levels. For a graphic, click http://r.reuters.com/vab88r

Friday’s report followed other signs of improving job prospects. Announced layoffs in the first quarter were the smallest total since 1995, and private employers added 201,000 jobs in March.

A survey of U.S. chief executives by the Business Roundtable found more than half are looking to add jobs over the next six months and their view of the economy brightened.

‘ACCELERATING GROWTH’

Staffing executives often accentuate the positive but evidence of strong demand also comes from outside the sector.

Sterling Bancorp, whose holdings include a New York business bank that lends money to staffing companies — and studies their books — sees accelerating demand for temps, especially professionals.

Such demand turned up dramatically last year and has stayed “quite strong” into 2011, said John Millman, president of Sterling.

The bank’s loan quantity correlates directly with the number of temps employed, and Sterling has identified temporary help as a major growth area for its financing business.

“We’ll be up double-digits again this year, but it will exceed the growth we saw last year. It is accelerating,” Millman said. “Technology is really picking up. There is more and more of a trend to bring in temporary skilled people.”

For investors in staffing companies, a key question is when that trend reaches levels that enable staff providers to raise prices and hence their margins.

JP Morgan analyst Andrew Steinerman, with “overweight” ratings on Robert Half and Manpower, says such stocks benefit from an uncertain economic environment and calls the outlook for the remainder of 2011 “optimistic.

“Supply is beginning to tighten, and though not yet enough to push up bill rates, we see pricing power returning naturally later in the year,” Steinerman said in a research note.

Higher rates will appear first in the engineering field, where talent is available but skilled candidates sometimes face multiple offers, said Adecco’s Gilliam.

SFN’s Krause said it was unclear whether staffing companies would gain pricing power, but said, “You may see some wage inflation, which means better margins for our industry.”

(Editing by Dave Zimmerman, Gary Hill)

Analysis: Growth in temp jobs hints at wider recovery