City Comment

03-February-2010

Reports issued this week indicated that the UK has finally climbed out of recession, although only just, and that unemployment fell in November for the first time in 18 months. So, should we be getting excited about recruitment stocks or is this good news already priced in?

A number of the larger banks raised their recommendations on the large cap recruiters - Hays and Michael Page - this week including Goldman Sachs and JP Morgan. This implies they see value in the shares at current levels despite the strong run since the middle of last year. However, it is definitely worth taking a more in-depth look at the figures.

The Office for National Statistics (ONS) said last Thursday [28 January] that the broader measure of unemployment fell by 7,000 in November to 2.458m, the first quarterly decline since May 2008, leaving the jobless rate at 7.8%. This is good news. However, full-time employment fell by 113,000 to 21.2m, while part-time employment did not rise fast enough to compensate, increasing by 99,000 to 7.7m.

The improvement appears to be largely driven by women finding part-time jobs while men, predominantly, are losing full-time ones. It also masked the growing number of students without jobs but not technically unemployed. The number of people in the labour force who are neither working nor looking for work (the inactivity total) rose above 8m for the first time since records began in 1971.

ONS figures also showed that the economy has climbed out of the deepest recession since the 1970s. Official figures showed UK GDP grew by a meagre 0.1% in the final quarter of 2009 having fallen by 6% since early 2008.

Again it seems too early to get excited.

Most City analysts are expecting a difficult 2010 with VAT and income tax expected to rise, public sector spending under threat and interest rates (and therefore mortgage repayments) also likely to rise at some point in the next 18 months.