Staffing companies position themselves for recovery

Prashant Patel has been a staffing company manager for only three years, but he can say without a note of exaggeration that he's seen the best of times and the worst of times in the industry.

He started as branch manager at Adecco Employment Services in Reno when the local economy was going gangbusters, and unemployment dipped below 4 percent. Then he watched unemployment climb above 12 percent this year as the economy experienced the greatest slowdown since the Great Depression. It's been a wild ride.

The tough economy has hit staffing companies hard. Temporary help services accounted for 21 percent of all U.S. job losses last year. And so far the industry has faced eight consecutive quarters of year-to-year declines in the number of temporary and contract workers, according to the American Staffing Association in Alexandria, Va. In the third quarter of this year, employment by staffing firms was down by almost 24 percent and staffing company sales were off by 26 percent versus the same period last year.

Every staffing category is down.

"You would think demand for temporary positions would go up, but it hasn't," says Christine Brame, senior director of Accountants International in Reno, which provides entry- to executive-level temporary and permanent placement for finance positions. She says she thinks companies who need extra help bring back employees they've had to lay off rather than hire new temporary workers.

Executive search and permanent placement are down because companies aren't adding positions and employees aren't moving.

"People are hunkering down and staying where they're at," says Emily Ellison, regional manager of Hire Dynamics in Reno, which specializes in temporary, temp-to-hire and executive search in light industrial, call centers, sales and management.

Some staffing firms have downsized their offices. They're also tapping into new markets and focusing on other services besides employee placement.

Hire Dynamics has sharpened its focus on value-added services, such as training, and business development.

"It's no longer the challenge of just the sales people to generate leads," she says. Every staff member now works on ferreting out tips to potential sales.

Staffing is a relationship business, so maintaining contact with clients is critical even when they're not hiring, Brame says. "Fortunately we've built really good relationship over the years, and we've got a good client base."

Jim Annis, owner of The Applied Companies, which includes head hunting, temporary staffing and employee-leasing firms, says he took a contrarian approach to the economy.

"Some companies reduce spending on sales and marketing in a downturn, but we invested in improved marketing."

That investment included improving point-of-sales material, upgrading the Web site, "following every morsel of a lead," and embarking in a new staffing market. Annis wouldn't disclose the new market, but says it's an under-filled niche.

Annis, whose businesses are all focused strictly on northern Nevada, decided not to lay anyone off and chose to lose money on the staffing business side. In fact he recently hired someone to grow the headhunting division.

Doubling of the employee leasing business in the last two years helped offset losses. Employee leasing is a relatively new concept in northern Nevada a virgin market, as Annis puts it yet its complexity makes it a difficult business to enter. Employee leasing companies, also known as professional employer organizations, handle all the human resource functions and lease employees to businesses.

Adecco, meanwhile, which specializes in clerical, administrative and light industrial markets, is investigating new markets, such as landscaping, and Patel says in the next year his branch will increase its focus on permanent placement.

One challenge faced by every staffing company is handling the huge number of people looking for jobs.

"It really can be disheartening sometimes," Ellison says. "It's scary to see someone who's worked for 25 years and who's now out of a job or someone who's been retired for a number of years and, having lost money in the stock market, needs to find work."

Annis says his firm interviews every candidate who walks in the door.

"We don't blow smoke and blue-sky things, but we know how to provide them with hope. We listen and make suggestions, such as on how to improve their interviewing and resume. Sometimes people just need somebody they can talk to."

So what's next?

Patel says he had hoped to see an uptick in demand for temporary staffing with the holiday season.

"But we haven't seen that much of an increase, and that's kind of surprising," he says.

Yet there are hopeful signs.

Although U.S. staffing employment was down in the third quarter compared to a year ago, the number of temporary and contract workers employed by staffing companies rose almost 7 percent from the second quarter of this year, and sales increased 5 percent, according to the American Staffing Association.

And U.S. Bureau of Labor Statistics show seasonally adjusted temporary employment increased by almost 3 percent from October to November, with 52,000 temporary jobs added, the largest monthly gain since October 2004.

That bodes well for the staffing industry and the economy as a whole because increases in temporary employment historically signal the beginning of jobs recovery, says American Staffing Association President and CEO Richard Wahlquist.

Ellison says she's optimistic. Her firm started feeling the pinch in mid-2008, earlier than some of her competitors, and she believes it may feel the recovery sooner. Business is starting to pick up, and customers report they're not expecting any major employment drop offs. She expects sales to return to levels not seen for two years by the end of 2010.

Brame says she's starting to hear hopeful news, too. "People are still cautious, and there are still some layoffs projected, but the majority have been done, and companies are starting to look forward. I'd call it guarded optimism."

Annis says his staffing business saw a small increase in business in the last two months. He projects a U-shaped recovery, with sales remaining steady for the first nine months of next year, then rising in 2011 along with inflation, which will present yet another challenge.