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R. A. Cohen Consulting Newsletter

 

  

2011 Staffing Industry Economic Analysis


November 16, 2011
Greetings!

After 20 years as advisors in over 130 staffing industry mergers and acquisitions, we've gathered many insights for sellers and buyers that we would like to share with you. We hope you will find them informative and enlightening.    


 

 

 

Staffing Statistics

Recently the American Staffing Association (ASA) published an analysis of the economic impact on the industry over the past few years. It may also shed some light on what the industry can expect going forward. This report has been abridged.

Written by ASA vice president Steven P. Berchem, CSP, the report takes an in-depth look at what staffing employment says about the current economic environment and the future of overall employment; how the Great Recession affected the industry and how quickly it is recovering; and prospects for economic, employment, and industry growth.

 

Highlights from the analysis:

        In the two years after the Great Recession ended in June 2009, U.S. staffing firms created more new jobs than any other industry

        U.S. staffing firms hired 9.7 million employees during 2010, 4.1% more than in the prior year

        In 2010, temporary and contract staffing sales increased by 21.3%; search and placement sales increased 22.8%

        Eight out of 10 temporary and contract employees work full time, about the same proportion as in the overall U.S. work force.

 

In the two years after the Great Recession ended in June 2009, U.S. staffing firms created more new jobs than any other industry. According to the U.S. Bureau of Labor Statistics, the temporary help services industry added nearly half a million workers and accounted for 91% of total nonfarm job growth from June 2009 through June 2011.

Even as the American staffing industry leads overall job growth, it still has far to go in returning to its prerecession high. The industry lost more than a third of its work force during the recession, and only about half of those losses have been recovered in the subsequent two years of economic expansion.

The staffing and recruiting industry is "hypercyclical," meaning its business cycle tends to be exaggerated during economic expansions and contractions.

Staffing industry employment usually peaks in the fourth quarter of any given year. In the fourth quarter of 2008, however, when the U.S. economy was in the midst of a free fall, staffing employment contracted by a quarter million workers-the most severe decline in the recorded history of the industry. When business is going badly, staffing clients quickly respond by first shedding temporary and contract workers. In January 2009, the White House estimated that payroll employment in temporary help services accounted for one in five job losses in 2008.

In contrast, in the early stages of economic recovery, businesses turn first to temporary and contract workers to help them meet growing demand. Hence the rapid uptick in staffing employment since the Great Recession ended.

Staffing as an Economic Indicator

Staffing jobs historically are sensitive to the ebbs and flows of the economy. As the economy contracts the number of jobs declines. As the economy expands the number of staffing jobs increases. This is especially true when the economy pulls out of a recession, according to research results published by the American Staffing Association in July 2009 just as the great recession was ending. "A sustained upturn in temporary and contract staffing employment would signal the end of the current recession" the ASA Research Paper predicted.

  

Staffing Industry Analysts (SIA)

Their take on our current economic situation looks more closely at very recent results. Since the last time we wrote the Economic Cycle Research Institute's (ECRI)weekly index continues to fall and ECRI maintains a recession is coming.

  

The significance of their prediction is that in the past they have always predicted recessions' accurately; they also never had a false alarm (predicting a recession that did not subsequently occur). Therefore their messages are worth listening to even if other predictors have not gone that far, in fact several think the economy will be alright, they just can't tell us when with any certainty.

  

In the meantime the economy shows mixed results, there still seems to be no clear direction.

  

In the last quarter the US lost more jobs in construction and government while education, leisure and temporary staffing jobs increased. Temporary staffing employment, Year over Year (YOY) is up 7.9%. Direct Hire was up over 10% YOY while Executive Search was down.

  

The Temp penetration rate of all jobs was 1.75% in August which was the same as it was in 1998, however this is an improvement as we rose from 1.72% where it had been for many months that was equal to the rate in the early 1990's.

 

Recruiting is more challenging than getting new sales among 58% of companies rather than 42% of companies that are still finding sales harder to get than recruits. This is a positive for the industry since as recruiters we should have an advantage in finding people.

 

SIA also revealed some highlights from their 8th Annual Buyers Survey (companies with more than 1,000 employees).

 

Buyers were asked whether they expected to use fewer or more temp/contingent workers over the next two years. Most answers by industry sector expect to use more temp workers:

 

Chemical/Energy-a net of 47% expect to use more

IT and Manufacturing a net of 46% expect to use more

Finance/Insurance a net 40% expect to use more

Industrial/Logistics a net 40% expect to use more

Office/Clerical a net of only 23% more-the least inclined group to use more in their survey.

 

Also announced was that in the December issue of SI Review will be a featured article on Mergers & Acquisitions (M & A) titled "The Price may be Right" indicating there is renewed interest from buyers in growth through acquisition.

 

This could be a good time for you to consider a sale if you

have been sitting on the sidelines reviewing your options.

 

If we can help your firm with a valuation or a discussion of your options, there is no obligation, no cost and total discretion.

 

Several firms we have spoken to recently are looking for exit strategies in 2012 as they are tired of this prolonged period of economic uncertainty.

 

Many want to see what their business is worth. We can help with a rough but accurate valuation of your business at no cost if you ask our advice about selling.

 

If you are interested, contact us and we will send you the information we need to give you an idea of the value range

for your business.

 

Whether your staffing company is interested in buying or selling you need to consider both the positives and negatives of the transaction. We hope this information is helpful to you in that decision.

 

Please contact us with complete confidentiality so we can help you with your plans.



 

 

 

   

 

Contact Sam, Bob or Mike, who have successfully completed over 130 staffing industry transactions, if you'd like to discuss M & A matters related to your staffing firm on a confidential basis.      

  

              http://www.racohenconsulting.com/contact.html      

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bob Cohen  

(416) 229-6462

[email protected]

Sam Sacco
(910) 509-0691

[email protected]

Mike Stinson

(502) 541-9200

[email protected]