Market Volatility and its Impact on Staffing

ThinkstockPhotos-186679519Wow! After a period of relative quiet, the stock market has been in a state of flux at the time of this writing. This is not to say what will happen tomorrow or the next day, but it is worth thinking about what this means to staffing in general and to one’s company. To put things into perspective, the market declined more than 10% in a week and 1,000 points at the opening bell on Aug. 24. This is mainly due to China’s declining industrial output and its devaluation, followed by other international concerns, a slower US recovery, etc. However, bear in mind that the Dow has risen 2½-3-fold over the last 6½ years (after the derivatives, sub prime mortgage debacle, etc.) and during this period, we had no less than five substantial corrections.

So what does this all mean? First, these types of corrections are normal and one should not panic. With computerized trading now being the norm trying to explain the unexplainable is simply reverse fortune-telling, making up what happened to fit the facts. Nevertheless, when there is major correction, almost everyone starts to freeze or cut spending due to uncertainty. Then there are the risk takers, who start to buy what they perceive as bargains, thinking they know where the bottom is.

Staffing companies may see a hiring freeze or even layoffs, as has happened already to those serving in the energy or export sectors. This can affect both direct hire and temps, with usually 2:1 relative impact. Until staffing company’s clients can see which way the economic winds are blowing they will defer adding costs, or even cut costs. Some staffing companies may reduce their prices to avoid being left out in the cold. They may also see an increase in the number of days clients take to pay their bills, affecting cash flow. Meanwhile, banks may tighten their loan policies and even enforce their covenants more strictly.

A wise staffing company will make plans in advance of these events and have contingency plans in place. When the foul winds die down, those fastest to reverse direction will be the winners, hiring good candidates, using their hoarded cash to make sound investments, scooping up clients who are again ready to spend money, etc.

Adversity is the father of opportunity and in general small to midsize staffing companies are quicker to take advantage of this.

MORE: What is turnover costing your company?



Michael Neidle

Michael Neidle
Michael Neidle is president and CEO of Optimal Management, an advisor to staffing firm owners and managers.

Michael Neidle

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