SI Review: December 2012

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Research Report: How Hot Is Your Market?

How Hot Is Your Market?

A glance at recent history can help you boost profit

By Timothy Landhuis

As an executive in the staffing industry, your company relies on you to know the supply-and-demand landscape of your target markets, in order to devise the growth plans, resource budgets and pricing strategies that will lead to the greatest profits. One perspective on whether demand is “hot” for a given staffing segment is to compare current demand with the historical peak demand for that segment. In this article, we examine projected 2013 U.S. market sizes for the major temporary staffing skill sets and compare them with their pre-recession peaks, in order to frame current conditions in their historical context.

Hot Markets

The following temporary staffing markets are expected to surpass their pre-recession peak: locum tenens (or physician) staffing, information technology, industrial, engineering, marketing/creative and clinical/ scientific.

In these market segments, high demand may imply greater scarcity of candidates and longer order fill times, but also the potential for higher bill rates, higher gross margins, and higher profits. Knowing that demand is at a historical high level may help you negotiate pricing that ensures your firm is being compensated for the heightened challenge of finding quality candidates in these fields.

These segments may also be attractive near-term markets for growing your business to the extent that they have secular drivers independent of the business cycle. For example, the looming physician shortage and health- care reform are driving growth in locum tenens, while rapid technology advances continue to boost IT staffing growth. However, markets at historical peaks may soon plateau if cyclical demand is satisfied and there is an absence of secular drivers.

Recovering Markets

Following the same logic as above, these staffing markets are “recovering” by historical standards because their projected 2013 U.S. market size is less than their pre-recession peak: allied healthcare, office/clerical, finance/accounting, legal, per diem nurse, direct hire (or permanent placement) staffing, and travel nurse.

In these segments, low demand may imply a greater supply of temporary worker candidates and faster order fill times, but also imply lower bill rates, lower gross margins, and down- ward pressure on operating profits, as staffing firms compete for fewer orders.

A silver lining for these markets is that although demand may be down, these markets may offer growth potential if the demand factors that existed during their peak year return.

The Secular Shift

Another phenomenon worth mentioning is the recent evidence for an upward secular shift in demand industrywide. From 2010 to 2012, the U.S. staffing industry grew faster than the historical trend of the past 16 years would have predicted, when using GDP growth as the predictor. Causes for the secular shift include a shift away from independent contractors due to new IRS enforcement initiatives, as well as greater appreciation for the value of a contingent workforce as a result of the recession.

If the secular shift continues, these new sources of demand may act as a tailwind for growth in all of the segments mentioned above, both “hot” and “recovering” alike.

Timothy J. Landhuis is a research analyst with Staffing Industry Analysts. He can be reached at tlandhuis@staffingindustry.com.

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