Recruiters soared in post-covid jobs boom… but as they start to cut their own staff, is there trouble ahead?

Since the waning days of the pandemic, UK recruitment companies have experienced something of a golden age.

Labor shortages and fierce competition for talent have led companies around the world to aggressively hire and offer extraordinary pay raises to onboard staff.

The recruiting firms that helped them do it took a big cut, and many of them have reported record-breaking results ever since.

This allowed them to increase their own staff, as they cut back during the height of covid restrictions when many companies were laying off staff to save costs.

However, in recent months, many headhunters have begun to reduce their headcount once again, as economic uncertainty has caused the job market to shrink.

Robert Walters cut 120 jobs in the second quarter of 2023while PageGroup cut 450 between January and June, equivalent to 5 percent of its workforce.

Is this the start of a change in fortunes for the UK recruitment industry and what does that mean for your investment prospects?

What has caused the heat to cool in the labor market?

Inflation has grown significantly in the last 18 months due to factors such as the post-pandemic revival of economic activity and the higher cost of fuel and food due to high gasoline prices and the war in Ukraine.

In response, central banks have raised interest rates to try to dampen price rises. This has had some success, but at the expense of slowing GDP growth and rising borrowing costs.

More and more companies have responded by cutting investment and freezing new hires, or even cutting their overall workforce.

Tech developers have been at the forefront of this reduction, announcing around 228,000 job losses this year alone in mid-August on top of 165,000 losses in 2022. according to layoffs.fyi.

Banking giants are also shrinking due to a drop in M&A deals, with Barclays and Goldman Sachs two prominent names to wield the axe.

How many jobs has the recruitment industry lost?

It is difficult to obtain monthly data on total employment in the UK recruiting profession, so determining the broader scale of job cuts is challenging.

But most of the big London-listed recruiters are cutting staff numbers, including Hays, which cut its consultant staff by 3 percent in the last quarter after a drop in fee income.

Industries implementing large-scale layoffs will have knock-on effects for industry-specific recruiting firms, such as the technology-focused Parity Group, which announced job cuts in early August after noting a 10 percent decline in jobs. income.

Gloomier Times: More and more companies have responded to rising inflation and interest rates by cutting investment and freezing new hires or even cutting headcount overall.

However, not all recruiters send out P45s en masse. Science, technology and engineering specialist SThree even declared a 5 percent increase in average staffing levels in its half-year results.

“There are very real industry differences in the recruiters that serve them, and that’s why we see different hiring and firing plans across the recruiting market,” said Kate Shoesmith, deputy executive director of the Recruiting Confederation trade body. and Employment.

She told This is Money that many recruiters focus on diversifying their offering, either through international expansion or moving into new markets, before considering downsizing.

Temp recruiters remain resilient

The financial performance of British headhunters tends to follow a trend close to the performance of the world economy.

They cut jobs significantly during the 2008-09 global financial crisis and pandemic as unemployment rose and wages fell.

Companies that rely heavily on finding full-time staff are particularly vulnerable, but not necessarily those that focus on getting people into temporary jobs.

Timo Lehne, chief executive of SThree, says the uptick in demand for short-term contracts makes his company well-suited to supply workers for the technology, life sciences and engineering sectors.

“For our business, contract employment offers a more predictable and visible income stream and greater value throughout the duration of the engagement,” he says.

Don’t Hire: Recruiters who rely on finding full-time staff are quite vulnerable to economic downturns, but not necessarily those who focus on getting people into temp jobs.

In the first half of the fiscal year, the group reported net fees fell just 2 percent, as increased contract revenue largely offset a 19 percent drop in permanent fees.

Staffline also takes issue with the gloomier outlook for the recruiting industry. The Nottingham-based company provides workers for some of the country’s biggest supermarkets, such as Tesco and Sainsbury’s, as well as industries ranging from manufacturing to logistics and food packaging.

Daniel Quint, the firm’s chief financial officer, said: “While ‘hours worked’ are definitely below trend and overall productivity is weaker, our client compliance goals still require a level of recruiting support that is not changes materially from year to year.

“This is in contrast to more cyclical recruiters… who will manage their staff more aggressively through the ups and downs of the cycle.”

Are headhunters a good investment?

The top London-listed recruiters, PageGroup, Robert Walters, Hays and SThree, struggled at the start of the pandemic as countless industries, from airlines to leisure and hospitality, were devastated by lockdown rules.

Stocks began their rally in late 2020, when hopes for a vaccine began to come true.

As travel restrictions were loosened, the four companies began a steady climb that lasted a good year and saw them achieve record share prices.

This rise returned to earth in 2022, even as underlying structural factors continued to give them massive tailwinds.

Today, shares of all four companies remain below pre-pandemic volumes, not to mention their late-2021 peak.

Since the end of 2019, hays shares have decreased by 45 percent, while Robert Walters shares have experienced a 31 percent drop, and PageGroup Actions they are about 16 percent lower.

What is the outlook for recruiters?

The global economy has managed to remain relatively strong since the pandemic, despite high inflation and high interest rates.

In Britain, unemployment is only slightly higher than pre-Covid levels at 4.2 per cent, while job vacancies currently top 1 million.

But the full impact of the Bank of England’s 14 consecutive base rate hikes has yet to be fully reflected.

REC’s Shoesmith warned that the latest UK GDP figures (0.2 per cent in Q3) were “not good enough to give employers, recruiters’ clients, full confidence to continue with the new hiring plans, and that directly affects recruiters.

Forecasters at the Bank of England, KPMG and other major organizations predict that unemployment will rise soon, so it would not be surprising if the recruiting sector imposed more job cuts.

But labor markets in many countries remain very tight, while many industries, especially hospitality and construction, are desperately struggling to attract new people.

There will be winners and losers, but there is still a chance that some headhunters will manage to overcome the current problems quite well.