Overview
A previous post showed how long it takes staffing firms to recover revenue after recessions. Noting the unexpected similarity in recovery time between the dotcom crash and the Global Financial Crisis (GFC). importantly, that ⅓ of staffing firms never get back to the same level of revenue.
There was a noticeable difference in how long it took staffing firms to recover market cap between the dotcom crash and the global financial crisis. Despite the severity of the Global Financial Crisis, firms recovered market cap more quickly after the global financial crisis than the dotcom crash.
After the dotcom crash, it took 9 years on average for staffing firms to recover their market cap, as compared with 4 years after the Global Financial Crisis. Albeit, post dotcom crash, 30% of firms never reached their market cap highs versus 20% after GFC.
Two notable differences between dotcom and the global financial crisis (GFC) are the extent of the unemployment and the aggressiveness of the Federal Reserve’s responses.
In the dotcom crash, unemployment went from ~4% to 6%. Employment took 5 years to recover to pre-crash levels.
The global financial crisis went from 4.4% to ~10% unemployment and took 7 years to get back to pre-Financial Crisis employment levels.
The Federal Reserve responded to the GFC aggressively: buying up assets and lowering interest rates dramatically.
Federal Reserve Balance Sheet Over Time
Federal Funds Rate Since 1998
The bullish case for staffing firms coming out of this pandemic is that there is, unfortunately, ample opportunity around hiring. With 30M+ Americans out of work, the hiring opportunity has never been greater. This, paired with significant activity from the Federal reserve could spell a quick recovery for Staffing firm stocks.
The bear case has two main factors: workers get directly re-hired by old employers or workers never re-enter the workforce.
Companies that see an uptick in growth and directly re-hire their previous employers do not need an employment agency, although there might be opportunity in coordinating the mass re-hiring. There will also be a large set of the currently unemployed that never return to the labor force.
Those that never return to the labor force will not return for a number of reasons, and those reasons will vary over time.
In the short-term, unemployment benefits and eviction moratoriums are more compelling than risking a Covid-19 infection in the workplace. Some workers will opt for freelance/self-employment and turn to alternate platforms.
To date, though, publicly traded Staffing Firms are lagging the S&P 500. Most staffing firms are down about 25% from pre-pandemic levels, while the S&P 500 is down only about 10%.
Focus on Growth 