Staffing shares slump after Goldman downgrades

NEW YORK (Reuters) - Shares of most U.S. employment-related companies slumped in early trading on Thursday after Goldman Sachs cut its ratings on several of them because of concerns about a slowing U.S. economy and the prospect for downward earnings revisions.

Goldman downgraded three stocks -- Hudson Highland Group Inc (HHGP.O: Quote, Profile, Research, Stock Buzz), Kelly Services Inc (KELYA.O: Quote, Profile, Research, Stock Buzz), and Spherion Corp (SFN.N: Quote, Profile, Research, Stock Buzz) -- to "sell" from "neutral," citing their exposure to the most economically sensitive segments of the temporary staffing market.

Hudson dropped 6.9 percent to $13.62, Kelly fell 3.1 percent to $21.27, and Spherion was down 4.6 percent at $9.05.

Goldman also cut two other companies, MPS Group Inc (MPS.N: Quote, Profile, Research, Stock Buzz) and executive recruiter Korn/Ferry International (KFY.N: Quote, Profile, Research, Stock Buzz), to "neutral" from "buy."

Korn/Ferry was down 1.3 percent to $17.22, while MPS lost 4 percent to $12.

"We do not expect the staffing stocks to rally for long on the back of Fed rate cuts because we believe that such cuts intensify the debate surrounding the health of the labor market," analyst David Feinberg said in a research note issued before the market opened.

The U.S. Federal Reserve on Tuesday cut interest rates by half a percentage point to ease the impact of a housing slump on the broader economy. Earlier this month, the Labor Department reported a surprise drop in August nonfarm payrolls, which helped feed speculation that a recession might be around the corner.

Goldman kept its "buy" rating on two other stocks, CDI Corp (CDI.N: Quote, Profile, Research, Stock Buzz) and Kforce Inc. (KFRC.O: Quote, Profile, Research, Stock Buzz), where confidence about earnings prospects are higher.

Demand for professional temporary staff in fields like information technology and accounting remains strong compared with clerical and industrial staffing, Goldman said, which plays to CDI and Kforce's strengths.