Five trends to watch in the staffing industry
March 29, 2018
By Neal England
Practice Leader – Human Capital Management
The near-term and long-term outlook for the staffing industry looks prosperous, especially for firms specializing in healthcare and IT sectors, as a strong economy, tax reform and regulatory relief give rise to growth prospects for the industry.
I had the opportunity to attend Staffing Industry Analysts’ recent 2018 Executive Forum North America in Miami, which provided a backdrop for staffing industry professionals to get up to speed on the latest trends affecting staffing, from changing client demands, to globalization, and the evolving technological landscape.
Below I’d like to share some takeaways that I believe will be issues the industry will be talking about and addressing as 2018 progresses:
- Tight labor force. As our economy realizes an increasing GDP and the national unemployment rate falls to 4.1% — a 17-year low, finding full-time, part-time and temporary workers will continue to be a challenge for U.S. businesses while providing a growth-opportunity tailwind for staffing firms. Assuming no economic shocks or major, sustainable correction in the stock market that potentially pauses growth, the unemployment rate is predicted to dip below 4% by summer. As a result, we think this may be one of the “up at night” issues for staffing firms. More than 20 major metros already have rates below 4% with the Nashville-Davidson-Murfreesboro-Franklin metro in Tennessee having the lowest unemployment rate: 2.8%. Many Texas metros, with Houston (4.7%) an exception, also have dipped below 4%: Austin-Round Rock (3%); Dallas-Plano-Irving (3.6%); and San Antonio-New Braunfels (3.4%). The tight labor market had conference participants discussing two emerging trends: Clients who are retaining temporary employees for longer assignments, pressing for reduced temp-to-hire liquidation periods, and an increase in the direct-hire market. A tight labor pool could be a negative as well, affecting the ability of staffing firms to source quality talent and maintain historical organic growth rates. Here at Capital Alliance Corp., we’ll be keeping an eye on how the stretched labor market is affecting the industry.
- Leveraging technology. We’ve written about how artificial intelligence (AI) is reshaping the way business is done across many industries, including in the human capital management sector. For staffing, AI can free employees from routine tasks, to allow them to concentrate on higher-value activities. Current uses of AI for staffing include chatbots that answer repetitive questions, algorithms to manage applicant pools, and analytics platforms to gauge if a candidate fits a company’s culture, according to CB Insights, a venture capital analyst firm. We expect the staffing industry to continue to refine uses for AI and how it can be used to help the sector prosper.
- Healthcare staffing growth. While staffing in general looks promising, healthcare stands out. Healthcare is sensitive to economic fluctuations due to the obvious supply-demand equation: As more people enter the workforce, more workers obtain healthcare coverage, which means they’ll seek out medical care and raise the demand for healthcare services and staff. The other growth metric compounding demand for healthcare talent is our growing “aging population” here in the U.S. According the March Bureau of Labor Statistics report, by 2030, all baby boomers will be older than age 65. SIA, in its “US Healthcare Staffing Market Assessment” report, notes that in healthcare “relative to other staffing segments, more clients choose temporary staff because a ‘permanent’ worker was not available.” The shortage is acute and the “gap between openings and hires illustrates the difficulty healthcare customers are having filling their job openings,” the report notes. A challenging recruiting environment is generally favorable for healthcare staffing firms. Low unemployment also typically means more “churn,” which can be advantageous to staffing agencies.
- IT staffing growth. Besides healthcare, IT is the other sector that continues to show substantial promise in the year ahead. Currently 13% of staffing employees work in IT, engineering or scientific occupations, according to the American Staffing Association. SIA forecasts revenue for IT staffing firms to maintain a 4% growth trajectory in 2018. The accelerating pace of digital innovation should continue to drive demand in the years ahead, but recruiting talent will continue to be the primary challenge as unemployment rates tighten.
- Robust M&A activity. With staffing firms firing on all cylinders, we expect an active M&A landscape, as staffing companies seek increased market share, service offering diversification and cross-leveraging opportunities. Last year, SIA reported 88 publicly announced transactions in North America, a 28% increase over 2016. IT and healthcare segments led the way. At least 12 deals involved private equity firms. With plenty of dry powder available to be deployed by institutional and family-fund investors, upward of $1.5 trillion, we further expect the staffing industry to gain continued PE investor attention.
Capital Alliance Corporation is a Dallas-based investment banking firm with an extensive international reach and a 40-year history of providing trustworthy advice to private company shareholders who want to sell their businesses. Our team has deep operational and M&A experience across many sectors, including human capital management.
Human capital management