While the national economy continues to avoid recession, there are ongoing and pronounced weaknesses in specific sectors. Unfortunately, these include key client verticals for industrial staffing: warehousing and logistics. Weakness in these industries has been sufficiently pronounced that the phrase “freight recession” has seen widespread use for the first time since 2019. Other client industries are experiencing a plateau (manufacturing, wholesale and retail) or growing too slowly to provide a near-term cushion (leisure and hospitality).
Official recession or no, the last several months have been difficult for industrial staffing firms. For example, TrueBlue posted a 15.6% year-over-year decline in consolidated revenues in the first quarter and is guiding for another decline between 10% and 14% in the second quarter. These follow a 10.3% year-over-year decline in the fourth quarter of 2022. Likewise, our Pulse Survey has similarly found weakness in industrial staffing since the January report, in which the aggregate response from industrial firms indicated December 2022 revenues were 20% below December 2021. Similar to TrueBlue’s first-quarter financials and guidance, our March and May Pulse Survey indicate improving, though still negative year-over-year, revenue trends for industrial staffing.
To some extent, these declines reflect difficult year-over-year comparisons against strong quarters in 2021 and 2022, and even with these declines, the size of the industrial staffing market remains meaningfully larger than it was pre-pandemic. As reported in the April update to our US Staffing Industry Forecast, we expect industrial staffing to be flat for 2023.
When can we expect relief from the current malaise, and where might future growth opportunities be hiding? Much of the growth in industrial staffing over the last few years followed the sudden shift to e-commerce during the pandemic and an unexpectedly rapid labor market recovery after the pandemic recession. The e-commerce share of retail sales remains substantially above both its pre-pandemic level and its growth trend despite moving sideways around 14.5% to 15% of retail sales since mid-2020. The growth e-commerce supported may be more likely to continue unwinding than to repeat in the near term. Similarly, labor market conditions are now supporting the plateau rather than pushing the market higher. Where is the growth opportunity? Manufacturing may hold the key.
Between government construction incentives and other support, and the supply chain crisis caused by the pandemic, which exposed previously underappreciated vulnerabilities of far-flung global supply chains, US manufacturing is poised for growth. This is especially true of those manufacturing industries targeted by recent government policies: strategic items such as semiconductors and “green” technologies.
The US Census tracks government and private-sector construction activity on a monthly basis. The current rate of manufacturing construction is the highest on record since 1964, even after adjusting for inflation. As shown in the graph below, which displays the value of private manufacturing construction since 2017, most of this surge is factory construction in the government’s targeted industries (e.g., many components for electric vehicles and solar or wind power are considered products of electrical equipment manufacturing).
Inflation-adjusted manufacturing construction value put in place
Click on image to enlarge.
As government policy, rather than market forces, has encouraged the construction of these facilities, the companies behind them may be cautious as they begin operations. Likewise, these industries are cyclical, with production volumes and employment levels ebbing and flowing with the economic tides. Semiconductor manufacturing also relies heavily on long and weekend shifts. Though these industries are highly automated, the factories currently under construction will need workers. Industrial staffing firms just might be who provides them.
