CMWebinar Oct 2010 by ThinkCreative

Staffing Industry Report Webinar October 2010

Jon Osborne VP, Research

Sona Sharma Sr. Research Analyst

Sponsored by:

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Staffing Industry Analysts Executive Forum 2011 March 1-3 ~ Fontainebleau Resort, Miami Beach, FL

www.siexecutiveforum.com

Thank You to Our Sponsor…

Agenda • Trends in economy & employment • Staffing trends by segment & sector • What’s the deal with IT staffing? • What’s different about consistently profitable staffing firms? • Legislative & regulatory update • Questions and answers ©2010 by Crain Communications Inc. All rights reserved.

ECRI remains subdued…indicating near-term modest economic growth 140

130

120

110

Sep-00

Sep-02

Sep-04

Sep-06

Sep-08

Level of Weekly LeadingIndex

150

100 Sep-10

Source: Economic Cycle Research Institute (ECRI) Weekly Leading Index

The Conference Board’s Leading Economic Index moderates 14%

10% 8% 6% 4% 2% 0%

LEI 12-Month Percent Change

12%

-2% -4%

Aug-00

Aug-02

Aug-04

Aug-06

Aug-08

-6% Aug-10

Source: The Conference Board, Monthly Leading Economic Index

PM Manufacturing Index: still indicates expansion, but at a slower rate 65 60 55

Index

40 Reces s i on

PMI EI

Sep-00

25 Sep-10

Sep-02

Sep-04

Sep-06

Sep-08

Source: Purchasing Manager’s Manufacturing Index

PM Non-Manufacturing Index: weak expansion but slight uptick in latest month 65 60 55

Index

Reces s i on 40

PMI EI

35 30

Sep-00

Sep-02

Sep-04

Sep-06

Sep-08

25 Sep-10

Source: Purchasing Manager’s Nonmanufacturing Index

700,000 600,000 500,000 400,000 300,000 200,000 100,000

Sep-00

Sep-02

Sep-04

Sep-06

Sep-08

0 Sep-10

Initial Claims for Unemployment (4-Week Average)

Initial unemployment claims remain high, but some moderation in last few weeks

Source: U.S. Department of Labor

U.S. GDP growth, actual & projected, 2007-2011 6%

2% 3Q11

2Q11

1Q11

4Q10

3Q10

2Q10

1Q10

4Q09

3Q09

2Q09

1Q09

4Q08

3Q08

2Q08

1Q08

-2%

4Q07

0% 3Q07

GDP Growth

-4% -6% -8% GDP growth

Philadel phi a Fed

Actua l

3Q11

2Q11

1Q11

4Q10

3Q10

2Q10

1Q10

4Q09

3Q09

2Q09

1Q09

4Q08

3Q08

2Q08

1Q08

4Q07

11% 10% 9% 8% 7% 6% 5% 4% 3% 3Q07

Unemployment Rate

U.S. unemployment, actual & projected, 2007-2011

Trends in total employment

Thousands

Change in Nonfarm Employment Versus Previous Month 600 400 200 0 -200 -400 -95,000 -600 -800 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10

Change in Nonfarm Employment Versus Year Earlier 1% 0% -1% -2% -3% -4% -5% Sep-08

Mar-09

Sep-09

Mar-10

Sep-10

Source: Bureau of Labor Statistics & Staffing Industry Analysts

In September, which sectors gained/lost jobs? Lei s ure a nd hos pi ta l i ty

Educa ti on a nd hea l th

Tempora ry hel p

Tra ns porta ti on & uti l iti es

Other

Reta i l tra de

Na tura l res ources /mi ni ng

Whol es a l e tra de

Fi na nci a l a cti viti es

-1

Profes s i ona l s rs (ex temp)

-3

Informa ti on

-5

Ma nufa cturi ng

-6

Cons tructi on Government

Source: Bureau of Labor Statistics & Staffing Industry Analysts

Trends in total private employment Change in Private Employment Versus Previous Month

Change in Private Employment Versus Year Earlier

400 Thousands

200 0 -200 -400 -600

64,000

-800 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10

1% 0% -1% -2% -3% -4% -5% -6% Sep-08

Mar-09

Sep-09

Mar-10

Sep-10

Source: Bureau of Labor Statistics & Staffing Industry Analysts

Trends in hours worked Average Weekly Hours of All Employees

Average Weekly Overtime of Production & Non-Supervisory Employees

34.8 34.6 34.2 34.0 33.8 33.6 33.4 33.2 Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep08 08 08 08 09 09 09 09 10 10 10

Hours

34.4

4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Mar- Jun08 08

Sep- Dec- Mar- Jun08 08 09 09

Sep- Dec- Mar- Jun09 09 10 10

Sep10

Source: Bureau of Labor Statistics & Staffing Industry Analysts

Industries where employment is expanding Average Monthly Change in Jobs Industries 1 Temporary help services 2 Accommodation 3 Other social assistance 4 Other ambulatory health care 5 Educational services 6 Support activities for mining 7 State government, education only 8 Fabricated metal products 9 Computer systems design and related services 10 Membership associations and organizations 11 General merchandise stores 12 Food services and drinking places 13 Services to buildings and dwellings 14 Home health care services 15 Performing arts and spectator sports 16 Transportation equipment Mental health, elderly community and other 17 residential care facilities 18 Heavy and civil engineering construction 19 Hospitals 20 Offices of physicians

Job Growth Score 93 81 80 78 78 78 76 76 74 73 71 70 70 70 69 69

Last 12 Months 35.5 3.3 5.2 5.4 7.1 5.2 3.4 4.6 2.9 0.7 1.7 4.6 0.8 3.3 1.9 3.6

Last 6 Months 17.3 9.7 6.3 5.7 5.4 6.6 4.7 6.8 4.4 4.7 5.6 1.1 5.3 2.9 3.8 4.2

Last 3 Months 8.0 8.3 7.3 6.4 5.0 5.3 7.4 3.8 6.1 7.6 4.0 5.1 4.6 4.5 4.7 2.2

68 68 68 67

2.4 0.5 3.3 2.9

3.3 2.9 2.7 2.1

3.9 6.3 3.6 4.1

Total Nonfarm Employment 2,117 1,779 1,787 1,993 3,156 310 2,409 1,314 1,460 2,931 2,950 9,441 1,738 1,074 417 1,350 1,474 821 4,722 2,324

Source: Bureau of Labor Statistics & Staffing Industry Analysts

Industries where employment is contracting Average Monthly Change in Jobs Industries 1 Federal government, excluding U.S. Postal Svc 2 Local government, education only 3 State government, excluding education 4 Local government, excluding education 5 Other employment services 6 Residential specialty trade contractors 7 Telecommunications 8 Building material and garden supply stores 9 Insurance carriers and related activities 10 Residential building 11 Amusements, gambling, and recreation 12 Real estate 13 Federal government, U.S. Postal Service only 14 Personal and laundry services 15 Management of companies and enterprises 16 Wood products Nondepository credit intermediation and 17 activities related to credit intermediation 18 Furniture and home furnishings stores 19 Utilities 20 Furniture and related products

Job Growth Score 5 15 19 20 20 20 23 24 26 26 29 29 29 34 37 37

Last 12 Months 33.5 -4.9 -4.8 -8.8 2.5 -4.7 -5.0 0.2 -5.4 -3.1 -2.5 -3.1 -3.7 -0.5 -0.8 0.2

Last 6 Months 1.3 -6.2 -6.3 -8.2 -2.8 -4.8 -4.8 -8.6 -3.7 -3.5 -0.7 -3.7 -2.9 -2.2 -0.7 -0.9

Last 3 Months -124.9 -14.1 -7.1 -0.7 -17.3 -7.6 -4.5 -4.8 -2.9 -5.0 -6.3 -2.6 -2.5 -3.5 -3.2 -4.0

37 40 40 41

-1.6 0.1 -0.7 -0.8

-1.7 -1.1 -1.2 -0.4

-1.2 -2.2 -1.3 -1.9

Total Nonfarm Employment 2,268 7,978 2,751 6,384 657 1,522 917 1,136 2,178 572 1,357 1,375 650 1,262 1,819 346 806 437 553 358

Source: Bureau of Labor Statistics & Staffing Industry Analysts

Manufacturing sectors with high overtime hours Rank NAICS

Description

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

31336350

Motor vehicle power train components

7.5

7.3

8.2

8.9

6.9

8.9

32324110

Petroleum refineries

8.7

9.2

9.7

7.6

7.8

8.6

#9 #3

32324000 32311420

Petroleum and coal products Fruit and vegetable canning and drying

6.4 3.8

7.0 5.1

7.3 5.1

6.4 4.9

6.1 5.3

6.7 8.4 *

32311400

Fruit and vegetable preserving

4.6

5.2

5.1

5.2

5.6

7.6 *

#11 #12

32311200 32311411

Grain and oilseed milling Frozen fruits and vegetables

6.7 4.4

6.9 3.8

7.3 4.4

7.3 5.7

8.2 6.3

6.6 6.5 *

#13

32311410

Frozen food

5.4

5.3

5.1

5.6

5.9

6.4

#14 #17

32311412 32311700

Frozen specialty food Seafood product prep and packaging

5.9 3.0

6.2 0.0

5.5 1.1

5.5 2.3

5.7 5.2

6.4 6.1 *

#18

32311611

Animal slaughtering

5.4

5.9

6.3

5.0

6.0

#25

32311100

Animal food

5.6

4.7

4.9

4.2

4.3

5.7

Source: Bureau of Labor Statistics & Staffing Industry Analysts

Manufacturing sectors with high overtime hours Rank NAICS

Description

Sep-09

Oct-09

Nov-09

Dec-09

Jan-10

Feb-10

31332722

Bolts

5.8

6.0

5.4

7.2

6.0

7.7

#6 #7

31331100 31327320

Iron and steel mills and ferroalloy Ready-mix concrete

8.0 4.2

7.2 7.4

7.9 5.7

7.1 6.4

6.7 7.7

7.5 7.4 *

#8 #10

31331400 31327300

Other nonferrous metal production Cement and concrete products

6.2 4.0

6.2 5.9

6.9 5.7

6.2 5.7

6.0 6.8

7.2 6.6 *

#15

31332400

Boilers

4.5

4.8

4.2

5.2

5.9

6.3 *

#16

32322100

Pulp

5.1

6.1

5.6

6.1

6.2

#19

31333100

Agricultural

5.6

5.8

4.9

5.7

5.6

5.9

#20

31335300

Electrical equipment

4.7

4.2

4.5

5.1

5.2

5.9

#21 #22

32325200 31327390

Resin Other cement and concrete products

5.3 3.8

5.7 4.4

6.2 5.6

5.8 4.9

5.9 5.9

5.9 5.7 *

#23

31331000

Primary metals

5.3

5.5

6.0

5.6

5.5

5.7

#26

31327000

Nonmetallic mineral products

3.8

4.9

5.2

5.1

5.6

#27

31331300

Alumina and aluminum production

5.9

7.4

6.9

7.2

6.6

5.6

#28

31332720

Turned products and screws

4.2

4.6

4.5

5.3

4.8

5.5

#24

31336411

Aircraft

5.4

5.1

4.6

4.9

5.5

5.7

Source: Bureau of Labor Statistics & Staffing Industry Analysts

Seasonal Peaks in Hiring—Who Hires When Jul

Aug

Sep

Oct

Nov

Dec

Scenic and sightseeing transportation

Motor vehicles and parts

Transit and ground transportation

Educational services

Department stores

Accounting and bookkeeping

Couriers and messengers

Amusements, gambling, and recreation

State/Local government education

General merchandise stores

Arts, entertainment, and recreation

Educational services

Clothing and clothing accessories stores

Child day care services

Source: Bureau of Labor Statistics & Staffing Industry Analysts

Trend in Total Unemployment U.S. Total Unemployment Rate Rate down 6 basis points in Sept, at 9.58% 11% 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10

Change in Number of Employed & Unemployed (Thousands), 3 Month Moving Avg 800 600 400 200 0 -200 -400 -600 -800 -1,000 Jul08

Jan09

Jul09

Jan10

Change in Number Unemployed

Jul10

Change in Number Employed

Source: Bureau of Labor Statistics & Staffing Industry Analysts

Trend in College-Graduate Unemployment U.S. College-Graduate Unemployment Rate Rate down 17 basis points in Sept, to 4.42% 5.0% 4.5% 4.0% 3.5% 3.0%

300 250 200 150 100 50 0

2.5% 2.0%

-50

1.5%

-100

1.0%

-150

0.5%

-200

0.0% Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-09 Jul-10

Change in Number of Employed & Unemployed (Thousands), 3 Month Moving Avg

Jul08

Jan09

Jul09

Change in Number Unemployed

Jan10

Jul10

Change in Number Employed

Source: Bureau of Labor Statistics & Staffing Industry Analysts

Trends in Hiring & Firing U.S. Private Sector Job Openings & Layoffs (Thousands) 5,000 4,500 4,000

Thousands

3,500 3,000 2,500 2,000 1,500 1,000 500 0 2005

2006

2007

2008 Job Openings

2009

2010

Source: Bureau of Labor Statistics & Staffing Industry Analysts

Trends in Staffing Employment

Thousands

Change in Temp Employment Versus Previous Month

Percent Change in Temp Employment Versus Year Earlier

150

30%

100

20% 10%

0% 0

-10%

-50 -100

-20% 16,900

Sep-08 Mar-09 Sep-09 Mar-10 Sep-10

-30% Sep-08

Mar-09 Sep-09 Mar-10

Sep-10

Source: Bureau of Labor Statistics & Staffing Industry Analysts

Trends in Staffing Employment Temp Employment Penetration Rate

Temp Employment Penetration Rate

2.0%

1.8%

1.8% 1.6%

1.6%

1.4%

1.63% = 1997

1.2%

2008

2006

2004

2002

2000

1998

1996

1994

1992

Sep- Mar- Sep- Mar- Sep- Mar- Sep07 08 08 09 09 10 10

1990

1.0%

Source: Bureau of Labor Statistics & Staffing Industry Analysts

Trends in Staffing Employment Percent Change in Direct Hire Internal Employment Versus Year Earlier 10% 5% 0% -5% -10% -15% -20% -25% Aug-08

Percent Change in Exec Search Internal Employment Vs. Year Earlier 14% 8% 2% -4% -10% -16%

Feb-09

Aug-09

Feb-10

Aug-10

Aug-08

Feb-09

Aug-09

Feb-10

Aug-10

Source: Bureau of Labor Statistics & Staffing Industry Analysts

Trends in Staffing Employment Layoffs as a Percent of Total Employment

Percent Change in PEO Covered Employees Versus Year Earlier 2.0%

10% 5% 0% -5% -10% -15% -20% -25% -30% Aug07

1.8% 1.6% 1.4% 1.2% 1.0% Feb- Aug08 08

Feb- Aug09 09

Feb- Aug10 10

Aug07

Feb- Aug08 08

Feb- Aug09 09

Feb- Aug10 10

Source: Bureau of Labor Statistics & Staffing Industry Analysts

Revenue Trends by Segment & Sector Staffing sectors month-to-month sequential revenue trends Apr to May to Jun to July to Aug to Sept Oct to Nov to Dec to Jan10 Feb to Mar to Apr to May to Jun to Jul to May Jun Jul Aug Sep to Oct Nov Dec Jan to Feb Mar Apr May Jun Jul Aug Temporary Staffing

↗

↑

Temp-to-Hire

↗

↑

↗

↑

Direct Hire

↗

↑

PEO

↑

↗

↑

↗

↘

↓

↘

↗

↑

↘

Retained Search Outplacement

↑ Widespread Improvement

↘

↗ Mild Improvement

↘ ↘ --

↘

-- Flat

↓

-↑

↓

↓ Widepsread ↘ Mild Deterioration Deterioration

Source: Staffing Industry Monthly Pulse Survey

Revenue Trends by Segment & Sector Temp staffing segments month-to-month sequential revenue trends Apr to May to Jun to July to Aug to Sept Oct to Nov to Dec to Jan10 Feb to Mar to Apr to May to Jun to Jul to May Jun Jul Aug Sep to Oct Nov Dec Jan to Feb Mar Apr May Jun Jul Aug Industrial

↗

↑

↗

↑

↗

↑

Office/Clerical

↗

↑

Engineering

↑

↗

↑

↗

↑

Fin./Accounting

↗

↑

↗

↑

↗

↑

Allied/other

↘

↗

↑

↗

↑

Clincial/scientific

↗

↑

↗

↑

↗

Legal

↑

↗

↑

↗

Travel nurse

↘

↗

↘

↑

↘

↗

↑

Locum tenens

↗

↑

↗

Per diem nurse

↓

↗

↘

↗

↑

↗

↑

↘

↑

Marketing/creative

↘

↗

↘

↗

↑ Widespread Improvement

↗ Mild Improvement

-- Flat

↑

Source: Staffing Industry Monthly Pulse Survey

Which is greater challenge—selling or recruiting? 100% 80% 60%

Selling 40% 20% 0% Jan-10 Feb-10 Mar-10 Apr-10

Recruiting May-10 Jun-10

Jul-10

Source: Staffing Industry Monthly Pulse Survey

Staffing industry balance sheet

•Selling/recruiting difficulty ratio improving over last seven months

•Private sector employment growth very weak

•Pulse: Most staffing firms still reporting sequential improvement

•Hourly recovery stalled

•College grad employment and labor •Economic indicators point to force up subdued economy •BLS reports temp gain of 16.9K, 12th month of increase •Job openings net of layoffs increasing

Staffing industry balance sheet

•Selling/recruiting difficulty ratio improving over last seven months

•Private sector employment growth very weak

•Pulse: Most staffing firms still reporting sequential improvement

•Hourly recovery stalled

•College grad employment and labor •Economic indicators point to force up subdued economy •BLS reports temp gain of 16.9K, 12th month of increase •Job openings net of layoffs increasing

IT staffing boom? Pulse shows August up 32% y/y 32%

22%

11%

22% 14%

6% 2%

-6% -14%

-7%

-1%

-12% -18% -23%

-25%

-1 0

10 gAu

l Ju

10 nJu 0 -1 ay M 0 r -1 Ap 0

-1 ar M

bFe

10 nJa 09 cDe 09 vNo 9 t -0 Oc

-0

09 pSe 09 gAu

l Ju

09 nJu 9 -0 ay M

Source: Staffing Industry Monthly Pulse Survey

Few staffing firms consistently growing & profitable How long has your staffing firm been consistently growing and consistently profitable?

1 Year 2 Years 3 Years 4 Years 5 Years 6 Years 7 Years+

Consistently Growing 28% 16% 11% 10% 10% 9% 9%

Consistently Profitable 58% 48% 46% 45% 44% 44% 42%

Source: 2010 Staffing Company Survey

Profitability consistency varies by industry served Average Number of Years Consistent Profitability, by Primary Industry Served 5.2

Energy/Chemical 4.1

Government 3.8

Technology/Telecom 3.4

Healthcare 3.1

Manufacturing Business Services

1.9

Finance/Insurance

Source: 2010 Staffing Company Survey

Profitability consistency varies by segment offered Average Number of Years Consistent Profitability, by Primary Segment Offered 4.6

IT Temp 3.4

Healthcare Temp Industrial/Logistics Temp

3.1

Engineering/Design Temp

2.9

Direct Hire/Placement Office/Clerical Temp

2.7 2.0

Source: 2010 Staffing Company Survey

Polling question: Which staffing company priority do you think is most correlated with profitability? A) Providing excellent customer service B) Recruiting quality candidates to place C) Acquiring other firms D) Training/developing internal employees E) Reducing/controlling costs F) Growing revenue ©2010 by Crain Communications Inc. All rights reserved.

Profitability correlated with focus on internal staff Survey: Which of the following are among your top three priorities?

Average Number of Years Consistently Profitable

Training/developing internal employees

4.4

Creating a positive company culture

4.1

Recruiting/retaining quality internal staff

4.0

Providing excellent customer service

3.8

Improving gross margins

3.7

Recruiting quality candidates to place

3.5

Expanding/diversifying number of clients

3.2

Growing market share

3.1

Growing revenue

3.1

Retaining existing clients

3.0

Reducing/controlling costs

2.7

Improving cash flow/receivables collection

2.3

Ensuring business survival

1.9

Acquiring other firms

Source: 2010 Staffing Company Survey

Does diversification help profitability? Average number of years consistent profitability as a function of diversification Markets sold to:

Segments sold: Concentrated: Sell a majority in one segment Diversified: Don't sell a majority in one segment Effect of segment diversification

Concentrated: Sell a Diversified: Don't sell Effect of majority to one a majority to one market industry industry diversification

3.3

3.5

+0.2

2.5

2.9

+0.4

-0.8

Source: 2010 Staffing Company Survey

Legal/regulatory changes important to staffing 1. Temporary workers seek wages for client interview time in new California class action 2. New York’s new law targets misclassification in construction industry 3. Court finds trucking staffing company can apply motor carrier exemption to drivers’ FLSA wage claims Want the full “Legs & Reg Advisor” report? Email cjohnson@staffingindustry.com ©2010 by Crain Communications Inc. All rights reserved.

New healthcare reform report for staffing firms 1. Prepared by Littler Mendelson, P.C. 2. Strategy A: Optimize coverage and offer to all internal and temp employees 3. Strategy B: Limit assigned temps to 29 hours/wk 4. Penalty fees large, not tax-deductible; administration complicated 5. Detailed recommendations in report Want the full Healthcare Reform report? Email cjohnson@staffingindustry.com ©2010 by Crain Communications Inc. All rights reserved.

Where to find latest research: staffingindustry.com

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