City Comment

1 September 2010 | By Sue Dodd

Despite some welcome rebounds in the UK and Europe, the same level of consistent economic optimism is hard to find. As it’s no secret that GDP and recruitment sales highly correlate, further concerns about the former are now feeding market sentiment on the latter in the UK and other Western markets. Talk of a slowdown in US recovery with double dip recession again on the table, following recent poor data on housing sales and unemployment, does nothing to calm such sensitive markets.

Recruitment shares generally have underperformed over the past year versus the FTSE All-Share Index, despite most companies currently predicting a fairly steady sales and profit recovery, with good growth persistent into quarter three. Only those subject to takeover speculation have shown any significant out-performance. Nevertheless, a few companies’ shares have held their own alone on fundamentals against the market, with Robert Walters notably one of the best performers as its share price sits barely 10% below its 12-month high, slightly better than the FTSE All-Share Index, unlike some of its peers languishing between 15% and 30% below their highs.

The latest half-year results from Walters illustrate why that may be - 70% of its business is overseas now, reporting overall net-fee growth of 39%, including a staggering 64% in Asia Pacific, where it is investing in new offices.

While there will always be successful niche performers within individual countries, the benefits of such overseas diversification are evidently crystal clear to investors.

The underlying dampening impact on key demand drivers in the economy and the uncertainty it engenders may well continue to encourage the variable use of temporary staff at least until the private sector can really compensate for that gap in demand

Where from here? UK recruitment sales growth is reported at about 20% exiting quarter two, making the above-share-price under-performances seem a little harsh. The temporary market has shown good, early cycle recovery in several sectors, especially Blue Collar, with employers clearly more willing to hire flexibly than permanently in the present economic climate.

As the gloves come off with the Autumn Spending Review and the extent of public-sector job losses becomes clearer, the underlying dampening impact on key demand drivers in the economy and the uncertainty it engenders may well continue to encourage the variable use of temporary staff at least until the private sector can really compensate for that gap in demand.

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