Gross margins among a group of 16 publicly traded staffing firms examined in SIA’s “Gross Margin and Bill Rate Trends: November 2022 Update” report increased by 87 basis points year over year to an average of 26.1%. in 2021. Gross margins at the companies, all of which conduct business in the US, ranged from 16.2% to 41.7%.

In addition, on a quarterly basis, average gross margins appear strong for the majority of companies in this year’s third quarter.

The increase in average gross margins in 2021 annual data and 2022 quarterly data also reflects divestment and M&A activity. The sale of BGSF Inc’s. (NYSE: BGSF) InStaff segment to Jobandtalent and the acquisition of Volt Information Sciences Inc. (NYSEAMERICAN: VOLT) by Vega Consulting added roughly 50 basis points to the average gross margin in 2021 and approximately an additional 50 basis points to the second and third quarters of 2022.

Driven by tight labor markets, the average gross margins in quarterly data for 2022 are the strongest back to at least the start of 2014. Further, while 2022 is following the normal seasonal pattern where average gross margin is significantly lower in the first quarter, average gross margin for the first quarter of 2022 exceeded every quarter from 2014 through 2020, even after taking into the account the effects of divestments and M&A.

The report also noted that despite the long expansion after the Great Recession, which ended due to the emergence of Covid, the average annual gross margin did not reach 2007’s pre-Great Recession levels and remained below 1999 and 2000 levels. According to the report, continued MSP and VMS expansion is one of the several reasons margins have not returned to 2007 levels. However, the report also noted gross margins did recover sharply after contracting during the pandemic and nearly matched their 2007 level last year.

Until 2021 and 2022, the US had not experienced a strong labor market since the late 1990s, according to Michael Schultz, SIA research analyst and author of the report.

“In the long, tepid recovery from the Great Recession, many employers forgot what a strong labor market looks like and how to recruit and retain workers in one,” Schultz said. “For the staffing industry, this created a massive opportunity to and strong rewards for matching people to work. That’s clearly showing up in financial results. In 2021, average gross margin almost matched its prior cyclical peak from 2007, and the first three quarters for 2022 suggest the year will have the highest average gross margin since 2001. However, with the labor market softening as the Federal Reserve combats inflation, 2022 may prove to be another cyclical peak.”

The report based gross margin on the entire company’s business, which in many cases included business lines other than temporary staffing. For example, companies with more direct hire business were likely to have higher gross margins.

The Adecco Group, BGSF Inc. (NYSE: BGSF), Kelly Services Inc. (NASDAQ: KELYA, KELYB) and Mastech Digital Inc. (NYSEAMERICAN: MHH) posted their highest gross margins ever in 2021.

Robert Half International Inc. (NYSE: RHI) posted the highest gross margin in 2021 among the staffing firms analyzed at 41.7%, followed by Resources Connection Inc. (NASDAQ: RGP) at 39.3%. On the flip side, Volt Information Sciences has the lowest at 16.2%, followed by ManpowerGroup Inc. (NYSE: MAN) at 16.4%.

Corporate members of SIA can view the full report online.