August 3, 2012 / 4:30 PM / 5 years ago

U.S. temp payrolls accelerate, lifting staffing stocks

NEW YORK, Aug 3 (Reuters) - Stronger-than-expected U.S. jobs growth in July included another large contribution from the temporary help services sector, lifting shares of staffing companies in U.S. and European trading on Friday.

The fastest growth in U.S. temporary payrolls in more than a year also lifted the temp penetration rate -- the percentage of temps in the workforce -- to its highest level in more than five years. The rate is still below past peaks and below levels in other countries, but its steady rise points to the central role that contract, or project-based, workers play in the labor market.

Industry executives and analysts expect the temp percentage rate to reach a record high soon, reflecting caution among employers amid economic uncertainty as well as a shift in the nature of American jobs.

The government reported on Friday that temporary help services added 14,100 jobs last month. The 10 percent year-over-year growth was the fastest since May 2011. About 2.5 million Americans are counted as temporary or contract labor.

The data was part of a broader employment report that showed the U.S. economy added 163,000 non-farm jobs in July, above forecasts of a gain of 100,000. However, the unemployment rate, based on a separate survey, edged up to 8.3 percent from 8.2 percent in June.

The percentage of temps in the labor force bottomed out in June 2009 at 1.34 percent. July’s rate of 1.91 percent was the highest since April 2007. The rate is approaching the peak during the last economic expansion, 1.96 percent in 2005, and could soon top the April 2000 record of 2.03 percent.

“We’re pretty optimistic about the rest of this year and into 2013,” said Joanie Ruge, chief employment analyst at the U.S. unit of Randstad Holding NV, the world’s second-biggest staffing company by revenue.

“There’s a shift in the way companies hire. They want to use talent on an on-demand basis, when they need them for projects. I would predict that (temp penetration) number to cross 2 percent and break a record, maybe by the end of the year.”

At midday Friday, staffing shares were outperforming the wider stock market. ManpowerGroup jumped 4.3 percent to $35.64, Robert Half International added 2.7 percent to $27.47, and TrueBlue Inc, which specializes in blue-collar staffing, roes 6.6 percent to $15.30. Kelly Services and KForce were also higher.

In European trading, Randstad, Adecco and Michael Page closed up 4 percent or more.


Temporary payrolls have been rising steadily since the U.S. jobs recovery gained traction in mid-2010, accounting for about 15 percent of all job gains since then.

When temp payrolls spike up or drop sharply, it can indicate a turn in the wider labor market: an imminent acceleration or a slowdown. That is not happening now, economists and staffing experts say. Growth is steady but not spectacular and shows an uncertain economy, rather than indicating an imminent pick-up in hiring. Employers are cautious about expanding the permanent workforce, and are using temps selectively.

Temporary staffing payrolls and hourly wage trends are the two components of the government’s monthly jobs report that are most predictive of future labor trends, said Chris Varvares, senior managing director and co-founder of Macroeconomic Advisers.

Varvares called temp payrolls “a small category that accounts for a large number of job gains.” Temp gains are being driven by “increased uncertainty about the sustainability of the expansion,” he said.

Over the long term, temporary staffing is growing faster than other categories because employers in manufacturing and other industries have grown accustomed to trying out workers before bringing them on staff, or use temps to lower overall costs, he said.

Business is steady, said Joel Capperella, vice president of Yoh, a Philadelphia-based staffing provider of workers for technology, healthcare and other fields.

“It’s not a waterfall, it’s more like a steady drip,” he said. “We still see plenty of larger (clients) that are sitting on cash that are talking about investing, but there’s a lot of uncertainty around the economy, the regulatory impact, what happens in the election.”

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