US jobs recovery at least six months away - analysis


Posted at Jun 07 2008 11:33 PM | Updated as of Jun 08 2008 07:33 AM


NEW YORK - A surprisingly large jump in the US unemployment rate during May sparked a sell-off in shares of staffing and employment services stocks on Friday, signaling that the length and depth of the current labor market downturn may well be worse than anticipated.

The Standard & Poor's HR Employment Services index was down 3.4 percent in morning trading.

Another several months of job losses are likely, analysts and staffing executives said, as evidence mounts that employers are more reluctant to hire.

But many also cautioned that some bright spots remain, and job losses remain relatively modest when compared with the millions of jobs added during the economic upturn.

The US economy shed jobs for the fifth consecutive month in May, down 49,000 outside the farm sector, and job losses in April and March were wider than initially reported. The unemployment rate jumped to 5.5 percent from 5 percent, its biggest monthly rise in 22 years.

One explanation for the jump in people looking for work, which drove up the unemployment rate, is that more people are returning to the work force as their budgets get crimped by high food and gasoline prices.

"We do see more and more candidates because of gas prices and their inability to easily relocate; they're looking for work, but frankly they need something close to home," said Tig Gilliam, head of staffing company Adecco SA's US operations.

"Costs are going up, so a bunch of people are going back and saying, 'OK, I've got to get serious,"' Gilliam said.

Jon Zion, who heads eastern US operations at specialty staffing firm Robert Half International Inc, agreed.

"As a practitioner in the staffing business, my sense of the economy of what's going on -- energy prices, the housing industry -- has probably forced a population of people to come back into the market."

As more workers look for jobs close to home, so more employers are thinking locally to cope with $4 per gallon gasoline.

Adecco clients are increasingly looking for candidates locally, Gilliam said, rather than doing nationwide searches. Some are offering gas cards to employees or organizing ride sharing and bus programs.

No recovery yet

A drop in professional payrolls in the government report was a troubling sign, said Scot Melland, CEO of Dice Holdings Inc, which runs jobs web sites focused on the technology and finance fields.

"That could be a leading indicator of a weakening in the labor market overall," Melland said. "We're probably looking at a couple of quarters before we see a change in the labor outlook."

The biggest change in recent months is that employers are taking longer to make decisions, said William Grubbs, executive vice president and chief operating officer of Spherion Corp. A permanent placement that may have taken 35 days six months ago now takes about 60 days.

"We're not on the road to recovery yet," Grubbs said. "Everybody was saying things would get better in the second half of the year, (and) I'm not sure this report shows that's going to happen," Grubbs said.

But he added that Spherion's staffing business was seeing "flat" trends, rather than declines, and he considered the big jump in the jobless rate to be "a little suspect."

The bears' evidence

Fifty-two percent of US employers are scaling back hiring over the next six months, according to a Dice survey released Friday.

Similarly, Chief Executive magazine, which polls CEOs, said this week its employment confidence index fell 4 percent last month, with 43 percent of CEOs saying they expect lower employment over the next three months.

The magazine's survey found that almost 36 percent of CEOs say "the worst is yet to come" in the US economy, almost double the number who said "the worst is behind us."

Another troubling sign: the percentage of temporary workers in the overall work force, at 1.79 percent, is the lowest in four years, said BMO Capital Markets analyst Jeff Silber.

"As a decline in this metric typically foretells an oncoming recession, this may confirm the worst fears," Silber said in a note, adding that staffing stocks were likely to be weak.

Not all gloomy

The jobs report showed 39,000 professional and business jobs lost last month, reversing the previous month's gains.

Still, the unemployment rate for skilled professionals -- engineers, accountants, finance experts -- is around 2 percent, less than half the overall national rate, Gilliam said.

"There are still jobs out there," he said.

Indeed, many workers are feeling optimistic about their ability to find new jobs or to keep the ones they have. A monthly Spherion survey of employee sentiment showed the first increase in confidence in 10 months.

Job losses this year have been slow and gradual, and are far more similar to a downturn in 1987 than to the sharp drops in the two most recent recessions, said Robert Half's Zion. People also feared recession back in 1987 and one did not materialize, he said.

"We need to be cautious in how we interpret these things because so much of this is psychological," Zion said. "We'll get into a self-fulfilling prophecy thing."