Staffing agencies have been a major beneficiary of increased appetite for cyclical companies and further sizeable gains over the past fortnight have propelled the year-to-date increase in share prices to very attractive levels. An investor who purchased shares in SThree, Spring or Networkers International on 1 January would currently be sitting on profits in excess of 70%.

Over the past few months I have repeatedly highlighted the fact that forward-looking indicators of economic activity are no longer deteriorating. The UK manufacturing, services and construction purchasing manager indices have all rallied from lows reached at the end of 2008. In April, a key measure of UK manufacturing — new orders — experienced its strongest rebound since June 1996. A similarly encouraging trend has been observed in the US. Chinese exports are recovering.

According to some economic commentators Japan could report positive GDP growth in the second quarter and, in the process, become the first major global economy to move back into the black.

Against this backdrop, trading comments from staffing agencies have been more mixed. Over lunch last week the financial director of one mainly temp exposed) recruiter expressed the opinion that the industry’s worst trading period had yet to come. Elsewhere, Hydrogen (a inancial
services specialist) noted in its AGM statement that the seasonal pick up at the beginning of the second quarter had been muted and the group traded at break even in Quarter 1.

However, Manpower provided a welcome positive surprise when they noted that the year-on-year decline in revenue growth had stabilised in the US and France during the past six weeks. According to management this was the “longest string of revenue stability in the US in four quarters” and the improvement had predominantly occurred in light industrial (which traditionally is the first sub-sector to enter recovery).

Manpower correctly stressed that stabilisation is not the same as recovery and they are cognisant that “this could be a shelf”. Randstad and Adecco concur and both anticipate no short-term reversal in current trading conditions. Unfortunately, if momentum does not improve the sector’s hard won share price gains are likely to be reversed.

Kean Marden, support services equity analyst, head of research, Singer Capital Markets