Weak jobs growth drags down staffing stocks

Published June 03, 2011

| Reuters

NEW YORK (Reuters) - Shares of U.S. staffing and jobs services companies fell on Friday after a disappointing jobs report showed far fewer new jobs were created last month than economists expected, adding to recent evidence the U.S. economy has hit a soft patch.

Just 54,000 jobs were added outside the farm sector in May, the slowest pace in eight months, compared to a downwardly revised 232,000 in April. Economists had been looking for a 150,000 increase.

(For a graphic, see http://r.reuters.com/vum89r)

The unemployment rate, based on a separate survey, rose to 9.1 percent, defying expectations for a slight drop. Temporary work, a category often viewed as a leading indicator of future hiring, shrank for a third month in a row.

Shares of companies that provide temporary employees fell more steeply in early trading than did the wider market.

ManpowerGroup shares fell 1.4 percent to $57.59. SFN Group fell 1.5 percent to $9.66 and Kelly Services was down 1.4 percent at $16.41.

Shares of global staffing companies were lower in Europe. Adecco, the world's biggest, shed 0.3 percent in Zurich trading, while No. 2 Randstad fell 1.8 percent in Amsterdam.

The U.S. economy did hit a soft patch, but that period of weakness may already be passing, said Randstad's U.S. President Linda Galipeau.

"The economy slowed down from the end of last year. Am I seeing an incremental slowdown with each passing week? No. It feels like a soft patch because we're not seeing it continue to accelerate."

Galipeau said new orders "started to tick up" two weeks ago, especially from small- and mid-sized businesses, but the financial sector is weaker compared to a few months ago.

"I'm cautiously optimistic ... the softest of the soft patch seems to be behind us," she said.

BUYERS' MARKET

Manufacturing employment dipped by 5,000 last month, according to Friday's government report, as losses in areas such as transportation equipment and food manufacturing offset gains in machinery and metals production.

The weaker-than-expected May jobs data followed Wednesday's disappointing report from the Institute of Supply Management, whose index of factory activity fell to its lowest level since September 2009.

Temporary staffing companies generate large portions of their revenues from providing so-called "light industrial" workers to the manufacturing sector.

It is a buyers' market, said Joel Capperella, vice president of Yoh, a Philadelphia-based staffing company, a division of privately held Day & Zimmerman, which specializes in information technology and other white-collar fields.

A large pool of available workers has enabled companies to negotiate lower prices, he said, so salaries are likely to be flat in the second quarter after growing in the first.

A multinational conglomerate client, for example, is adding jobs selectively in metro markets where costs are lower rather than in high-wage cities like New York.

"They want to do it intelligently, so they're not throwing good money after bad," Capperella said. Overall, demand for temporary workers has been steady: employers have money but are careful about where it is invested.

"There's a steady flow of demand, like a trickle, more than like a stream," he said. "There's still a lot of trepidation about what's going to happen. Today's jobs report is not going to help."

(Reporting by Nick Zieminski; Dave Zimmerman)

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