Job creation will take time to improve, despite growth

The economic upturn will come slowly for recruiters, with employment rates lagging long behind GDP growth.

The economic upturn will come slowly for recruiters, with employment rates lagging long behind GDP growth.

Investment banking specialist John East & Partners (JEP) has predicted UK employment won’t be buoyed by the initial phase of positive GDP growth, with companies increasing worker efficiency, rather than hiring.

“While GDP growth may return to positive territory in 2010 it does not follow that there will be a corresponding improvement in job creation.

“While official recessionary conditions are only likely to remain for three more quarters, the sequential rise in unemployment could continue for
another three years or so, if the 1979 to 1980 recession is anything to go by,” its latest report You’re Hired! says.

The report predicts the downturn will mirror that of the 1980s, pointing to parallels between quarterly falls in GDP in 1979 and now. That particular recession resulted in 20 successive quarters of rising unemployment.

“If this were to be repeated this time around the impact on staffing companies could be severe, with increased GDP output being satisfied by higher productivity from the existing workforce — in other words a jobless recovery could be in prospect,” says the report, adding the financial stimulus packages and other factors will have an impact.

At the moment the JEP Recruitment Index, which tracks recruiters’ share prices, has experienced “something of a recovery” since hitting a peak decline of 75% in September 2008.

However, Graeme Cull, head of corporate broking at JEP, told Recruiter he thought the extent of the crisis had not yet been reflected in the results of these companies. “In most cases the companies which have reported profits haven’t yet seen the worst of their downgrades yet. We don’t think they will be able to sustain the increases we have seen,” he said, adding that now may still be a good time to invest: “If you’re an investment manager this is when you should be doing your homework.”

During the last recruitment downturn, in the early 2000s, GDP growth continued and unemployment levels actually improved from 5.8% to 4.8%, but industry share prices collapsed by 85%.

The blame for the counterintuitive share price crash has been attributed to the “typical seven-year recruitment up-cycle” running its course.

“The index fell from an unsustainable and highly inflated level which we think was the result of excesses surrounding Y2K and the dotcom boom in 1999 to 2000.

“In fact, just before the collapse it was not uncommon to see recruitment companies selling on prospective price/earnings ratios of more than 40 times projected earnings, so there was a view that the sector had achieved a rate of growth that was exceptional and unsustainable,” the report continues.

The listed companies’ 19-yearlong “stellar” pre-recession growth period saw it outperform the rest of the stock market by dramatic proportions. The JEP index recorded a growth of 302%, compared to a 93% increase across the entire FTSE All Share Index.

JEP forecasts the next two years will see more pressure on earnings. It does, however, point out that share prices are likely to pre-empt the economic recoveries by six to 12 months and notes: “We are in virgin territory — we simply do not know, and neither do they [the listed companies], what impact the current macro environment will have on their business.”

The latest stock picks from JEP include buy recommendations for Penna Consulting and Healthcare Locums, hold for Empresaria Group and InterQuest Group, and sell for Robert Walters.

christopher.goodfellow@centaur.co.uk

Twitter Twitter

Don’t be too restrictive with your restrictive covenants, warns Lawspeed

The importance of properly drafted restrictive covenants has been highlighted in a recent decision by the Court of Appeal.

21 November 2017

Despite being fired, Shah recommends recruiters should try and get hired on The Apprentice

Would-be Apprentice candidates from the recruitment industry should think outside the box if they plan on pitching a new recruitment agency to Lord Sugar.

Lighter Side 17 November 2017
Halloween-group-photo

Social recruiting December 2017

From ghostly Halloween fundraising to having Hawaiian-themed fun days, here are some of the things you’ve been getting up to outside of recruitment…
 

Lighter Side 14 November 2017

Selling your recruitment business? Keep hold of your talent

Retaining your top talent when selling your recruitment agency is crucial, as failure to do so can materially cut the asking price for your business.

14 November 2017
Top