Without a doubt, the road to recovery for the labor market is proving to be quite long and bumpy. Since the last recession ended in mid-2009, the employment picture has brightened just a tad. Although it seems the job market is in better shape now than it was three years ago, overall trends have been rather choppy, suggesting the environment is still fairly fragile amid a slow-growing economy.
Hiring and unemployment statistics in recent months show just how uneven the recovery has been. Indeed, the labor market perked up in late 2011, and the trend kept up into the new year, with the national unemployment rate remaining steady in the first couple of months of 2012. Job gains were well within the 200,000-plus range from December through February, averaging more than 250,000 per month. Meanwhile, the unemployment rate, which had declined to 8.5% in December, edged even lower, to 8.3%., for both January and February. Given that the jobless rate had been stuck in the low 9% range for most of 2011, the improvement over that period was certainly welcome.
But the hiring spurt didn’t continue in the spring. In fact, the picture turned quite bleak, as the latest jobs report released by the U.S. Department of Labor showed, which included revised figures for prior months. In March, about 143,000 positions (adjusted down from 154,000) were filled, while April saw a much more meager increase, with just 77,000 new jobs created (a lower gain than the 115,000 previously reported). That was a total of 49,000 fewer positions that were thought to be filled for those two months. And things got even worse in May, as only 69,000 jobs were added for the month. That paled in comparison to the estimated total of 158,000 jobs expected by most economists. In the meantime, the unemployment rate edged back up to 8.2%, after retreating to 8.1% in April.
The decline in the jobless rate in April essentially reflected fewer people looking for work, since about 300,000 people had given up their search and were not counted in the Labor Department’s survey for that month. Yet, the situation was not necessarily better in May, when a lot more people re-entered the labor force to look for work. The labor force (including individuals employed and those searching for a job) grew by 642,000 for the month. The figure is hardly comforting, considering the small fraction of people that was absorbed into the job market. Staffing equities have traded lower on the latest news.
The recent setback, undoubtedly, calls into question the sustainability of improvement in the labor market. To put things into perspective, there are currently around 12.7 million people out of work, up 220,000 from April’s tally. We estimate that at least 200,000 jobs per month would need to be added for the unemployment rate to fall significantly and get the economy moving decisively in the right direction.
In terms of temporary and full-time hiring activity, each category has had its fair share of volatility, showing an upswing one minute and a slowdown the next. On the whole, however, it appears employers are continuing to hire staff on a temp basis for longer periods, adding permanent employees at a more deliberate pace. That, in essence, affords employers greater flexibility of hiring individuals with a specific skill set, minus the financial burden that typically comes with taking on full-timers. We suspect volatility will persist in the coming months, as employers remain cautious on the hiring front until they gain greater confidence in the economy.
Yet, despite the weaker May job figures, there are areas where job openings seem somewhat more plentiful or at least stable, giving a sense of optimism to those recruiters serving those markets. In fact, increases were seen most notably in the healthcare, manufacturing, and transportation and warehousing segments, offset by decreases in other categories, such as construction. Still, many other segments showed little or no change, as was the case with the professional and business services, which had experienced increases since September 2009.
Thanks to the resilience within the healthcare market, staffers, including AMN Healthcare (AHS) and Cross Country Healthcare (CCRN), are well positioned to take advantage of the uptick in demand for medical professionals. Recruiter Robert Half International (RHI), which has high exposure to the finance/accounting and IT disciplines, stands to benefit eventually, assuming the professional and business services market resumes its rebound in the months ahead. Similarly, although Manpower (MAN) won’t be spared by the near-term volatility in the labor market, the staffing behemoth should enjoy better results in time, once hiring activity shows more consistent improvement.
While the pullback for many of the members in the Human Resources Industry doesn’t come as a shock, considering the tepid employment figures of late, we would still not dismiss the entire group, especially for the long haul. If anything, we think enterprising investors with a buy-and-hold approach can find some worthwhile buying opportunities, but would be well advised to stay tuned to the situation and hold on tight for what could be a bumpy ride.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.