Q1 recap - How staffing firms can help understand potential economic change?

Hello from the desks at PRSG! Happy to be sharing trends and market data in hopes to provide detailed information that will allow you to make calculated decisions around hiring.  Don’t hesitate to reach out directly via LinkedIn through the messaging feature or via email with pointed questions or concerns you may have. Let’s get to it!

Importance of Staffing firms to the economy and indicators of potential economic change

Professional recruitment firms (direct placement & contingent) act as a bridge between job seekers and employers; therefore, staffing firms are in a unique position to observe and respond to changes in the economy. Due to their breadth and depth, they are exposed to a variety of industries, companies and most importantly the entire professional workforce. With this said, the amount of data points collected can provide great insight to organizations regarding trends and supply the workforce with relevant data to assist with decisions on employment. Here are the primary indicators that a firm may use to gauge economic change:

1.           Job openings - The number of job openings available through a staffing firm can be a strong indicator of economic activity. During periods of economic growth, more employers may be looking to hire, resulting in an increase in job openings. Additionally, firms that provide both direct and contingent resources can provide key data as to evolving changes. For example, in prior years, 2021 & 2022, most firms saw a significant change in their business mix. Business mix dramatically shifted to direct placement opportunities vs. providing temporary or contingent resources. This primarily was driven due to the participation rate, number of openings accompanied by the competition for the same resources. Q1 of 2023 saw a significant increase in the order flow from companies for JIT (JustIn-Time) resource needs. Historically, this has been a leading indicator of a labor market that is softening. We’re not there yet, but with the challenges in a few industries (High Tech and Financial Services to name a few) we are seeing the lesser amount of direct placement requirements and less competition for the same resources in certain job functions.

2.           Applicant pool: The size and quality of the applicant pool can also be an indicator of economic change. During a strong economy, there may be more qualified candidates available for positions, while during a downturn, the pool may be smaller and less skilled. We all know the applicant pool is still small and there is still strong demand for professional resources. During the last two months, we’ve seen a significant amount of resources that have opened themselves up to different employments types: specifically, temporary positions! The applicant pool is a direct indicator that we’re seeing optimization efforts (RIF, Layoffs, etc.) from employers. Specifically, we’ve observed Talent Acquisition (TA) teams within organizations be shuttered and current openings be put on HOLD! TA teams are front line in the infantry and can provide great insight as to where employment trends are going. 

3.           Wages: Changes in wages and compensation can also signal shifts in the economy. When the economy is strong, employers may offer higher wages and benefits to attract talent. Conversely, during a downturn, wages may decrease or remain stagnant. We all have experienced the relentless attack to our wallets due to inflation. Some warranted, some more opportunistic. Nonetheless, wages have been on a constant rise. It hasn’t been uncommon for us to discuss career moves with prospects and come out of those conversations with them looking for a 20%-30% increase in base compensation.

4.           Industry demand: Staffing firms may also monitor demand for workers in specific industries or sectors to gauge economic activity. For example, if there is an increase in demand for healthcare or logistics workers, it may indicate growth in those industries. No doubt the pandemic decimated industry verticals due to burn out, exposure and a variety of other challenges presented that were unexpected. Currently, the technology and financial services verticals have been the primary victims of workforce optimization exercises. We’re starting to see impacts trickle into a variety of other industries, but not concentrated yet.

5.           Client demand: Finally, staffing firms may observe changes in client demand for their services. During a strong economy, clients may be more likely to engage staffing firms to help fill positions, while during a downturn, they may cut back on staffing expenses. The staffing industry has not seen the slowdown from everything mentioned above yet. Primarily, it’s believed that the demand over the last year vs. supply is holding the industry steady. With recent announcements by major companies to reduce staff, I would expect this to change. If you’ve read this far, you already heard my explanation on business mix. I don’t believe the overall demand for professional workers is going anywhere over the next year, but do expect they types of request from the clients to change. 

By monitoring these and other indicators, staffing firms can better anticipate and respond to economic changes, adjust their hiring strategies, and help their clients adapt to shifting market conditions. 

Questions or Inquires: Email me at ajray@prsgllc.com or call 412-550-4071

ABOUT THE AUTHOR

A.J. Ray currently serves as the President and Founder of Precision Recruiting Solutions Group® with more than 20 years of experience in the executive recruiting, temporary staffing and public accounting industries. Before founding Precision Recruiting Solutions Group®, A.J. held a variety of progressive roles within the staffing industry including, Recruiter, Account Manager, Senior Market Manager and Client Relationship Executive furthering his understanding of customer needs and the industry. Prior to Precision Recruiting Solutions Group®, A.J. worked for a publicly traded national provider of accounting, finance and information technology staffing as a Senior Market Manager and previously as an Auditor with Deloitte, LLP.