This economic recovery may yet prove all too temporary, but for now its reliance on temps is one of the more impressive lines on its resume.
Temporary employment added 45,000 jobs last month, accounting for nearly 20% of February’s unexpectedly strong gain of 227,000 nonfarm payrolls.
These are, in most cases, far from plum assignments, and perhaps no more materially rewarding, on average, than the 41,000 net new jobs in eating and drinking establishments or the extra 12,000 positions in social services.
But gains in temp jobs are a signal that employers are pursuing opportunities and projects too taxing for the size of their workforce. That often leads to the eventual hiring of more permanent workers. So temp jobs are a widely followed leading indicator.
Last month’s increase was the biggest in more than two years. It’s worth noting that the prior stretch of such strong demand for temps, in late 2009 and early 2010, marked the transition from the heavy job losses of the Great Recession to the subsequent modest recovery.
January 2010 saw a net loss of 40,000 jobs despite the gain of 58,000 temp positions. But March and April of that year averaged more than 200,000 net new jobs apiece, rising to more than half a million additional payrolls in May.
Then Greece made the news and things cooled off in a hurry. But the spike in temp hiring did anticipate a broader turn for the better, and may do so again.
This should be very good news for staffing stocks, which in the past have seen big run-ups throughout an expansionary hiring cycle. Yet so far, there’s been surprisingly little action on that front, despite the fact that industry leader Robert Half International (RHI) is expected to post a 30% earnings gain this year, followed by a 27% increase in 2013.
Robert Half’s revenue was up 14% year over year last quarter, but the stock has been range-bound this year after a nice pop last fall—though it’s hardly expensive at 13 times trailing cash flow, given its growth rate. That cash flow was 82% higher in 2007 than in 2011, hinting at the stock’s potential should the economy continue to improve.
And Robert Half has done a lot better than Manpower Group (MAN), whose stock remains down 32% from April’s high, and more than half from its 2007 peak. Manpower has much lower margins than Robert Half, but also a less demanding valuation at less than six times trailing cash flow. That cash flow was 43% richer in 2007.
Manpower also has an interesting chart, with a picture-perfect double bottom last fall and recent consolidation on reduced volume right along its declining 200-day average, which is about to be pierced by the rising 50-day from below.
Kelly Services (KELYA) is a small-cap stock in the same field, and it hasn’t done much of anything lately, either. Revenue was up 12% last year, and the stock sells for 11 times this year’s estimated earnings and nine times the forecast for 2013.
Meanwhile, another set of stocks inversely correlated with the state of the job market has already been pink-slipped by many investors in anticipation of continued hiring.
The for-profit education group has been getting Ds and Fs ever since University of Phoenix operator Apollo Group (APOL) cut its enrollment forecast on February 29, blaming first and foremost “the improving labor market.”
The potential students targeted by the for-profit schools are finding increased opportunities in the workforce, and the industry is starting to suffer the inevitable letdown after racking up enrollments when jobs were harder to come by.
While valuations are cheap, this could prove to be a classic value trap as sales slump. I’d rather bet on record highs for staffing stocks than on a recovery by the for-profit education group to levels that prevailed just a few months ago.