Industrial Staffing Report: June 20, 2019

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Slower job growth in manufacturing a headwind for staffing firms

The US manufacturing sector has traditionally been one of the largest client industries for US temporary staffing firms. Manufacturing clients account for as much as 40% of the US industrial temporary staffing segment, a $34.9 billion market in 2018, according to Staffing Industry Analysts’ estimates. In this article, we look briefly at data suggesting slower overall job growth in manufacturing so far in 2019, as a way of gauging demand trends for industrial staffing.

As shown in the accompanying graph, US manufacturing added an average of 22,000 jobs per month in 2018, with growth fueled in part by the Tax Cuts and Jobs Act enacted at the start of the year. However, over the past four months (February to May) manufacturing has added an average of only 3,000 jobs per month. In a similar signal, the Institute for Supply Management’s PMI index slowed to a reading of 52.1 in May, the lowest level since October 2016, and well below its trailing 12-month average of 56.7.

The deceleration in manufacturing job growth is likely due to slower GDP growth, the waning stimulus of the Tax Cuts and Jobs Act, cyclical industries such as auto manufacturing having already reached peak sales levels, and rising international trade tensions.

Click on chart to enlarge.

Monthly job gains in US manufacturing, thousands (US Bureau of Labor Statistics)

 

The slowdown in manufacturing may help explain slower revenue growth reported by industrial staffing firms in SIA’s Pulse Survey. Median year-over-year revenue growth was flat in April, down from 3% in February. According to SIA’s latest US Staffing Industry Forecast report, which was released in April, industrial staffing firm revenue in aggregate is projected to expand 4% this year.

The US manufacturing sector is facing new challenges after the May 10 enactment of 25% tariffs on $200 billion of exports from China to the US, and the threat of similar tariffs on an additional $325 billion of goods. In addition, the USMCA trade pact with Mexico and Canada is still pending approval by Congress.

Such trade tensions raise the risk of further deceleration in US manufacturing, and downside risk to the outlook for US industrial staffing. Nevertheless, a silver lining for staffing firms is that heightened uncertainty can sometimes persuade clients to invest in having a contingent workforce model that enhances their agility and flexibility. The current context of an extremely tight labor market with near term uncertainty is a prime opportunity for staffing suppliers to deliver as strategic partners to their manufacturing clients.

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