Jobs data propels staffing stocks, risks remain

NEW YORK (Reuters) - Investors who pushed up shares of U.S. temporary employment agencies can relax a bit after Friday's U.S. jobs report came in better than expected.

While the data justifies market optimism on the sector, questions remain about the pace and sustainability of the expected recovery in temporary staffing.

Industry executives and analysts caution against reading too much into summer jobs data, which can be moved by hard-to-predict factors like people going back to school.

While the July numbers were better than prior months, it is too soon to say demand is bottoming, said Scot Melland, who heads Dice Holdings Inc, a specialist in technology, finance and healthcare jobs.

"There are jobs available, but we haven't seen a surge in recruiting that would indicate an end of recession," Melland said.

Dice shares rose 5.9 percent on Friday after the government reported the first decline in the U.S. jobless rate since April 2008, and said the drop in July payrolls was the smallest since last August.

Shares of TrueBlue Inc rose 4.3 percent and Spherion Corp rose 2.2 percent. Both staffing firms reported higher revenue from the light industrial segment in the second quarter compared to the first, and have seen their shares jump 50 percent over the past month.

"We saw the industrial gain across the country," Spherion Chief Executive Roy Krause said on Friday, adding that this improvement came earlier than seasonal factors would explain.

The light industrial sector encompasses warehouse workers, as well as some assembly, logistics and delivery jobs. Since this sector typically comes back first at the end of a recession, its sequential improvement can be read as evidence that the recession is drawing to a close.

Krause said July demand was similar to June levels, also an encouraging sign. "That's what's gotten the stock market moving up in the temporary help sector," he said. About 30 percent of Spherion's revenue is tied to the light industrial sector.

Krause predicted government data would show an increase in temporary jobs by October, but added it is still "a long way" before U.S. employers start hiring in meaningful numbers.

The temporary help sector lost about 9,000 jobs in July, a smaller decline than in previous months, the government said.

BOTTOMING... THEN WHAT?

Tig Gilliam, who heads North American operations for global staffing giant Adecco SA, said the industrial part of the temporary labor market normally rebounds strongly at the end of recessions, but he has not yet seen evidence of that.

"At best, we're at the bottom of the U, but we're not in a V," Gilliam said, referring to the shorthand way economists have been describing the shape of economic recovery, with V indicating a rapid rebound, U a gradual one, and the dreaded W representing a double-dip recession.

Jobs associated with the physical supply chain will recover as inventories get run down and need to be restocked, Gilliam said, but he added:

"The only place we're seeing the reaction you'd expect there is in automotive, and what scares me is that's artificial. (The) cash-for-clunkers program accelerated demand in that segment."

An upturn in light industrial staffing could come late in the third quarter or early in the fourth, Gilliam said, but overall hiring is unlikely before the end of the year, and the unemployment rate will resume its climb.

Despite these uncertainties, investors have been buying staffing stocks in the hope of benefiting from an early-cycle recovery, said JP Morgan analyst Andrew Steinerman.

"While we are encouraged by the narrowing trends in temp help declines, we will watch the post-Labor Day pulse for further indications," he wrote in a research note on Friday.

Manpower Inc jumped 3 percent, while shares of Robert Half International Inc rose 6 percent and Monster Worldwide Inc added more than 8 percent, all on the New York Stock Exchange. On the Nasdaq, Hudson Highland Group Inc was up 16 percent to $2.62.

All these stocks outperformed the S&P 500 index during the past month.

(Reporting by Nick Zieminski. Editing by Robert MacMillan)