(Bloomberg News) Shares of staffing and recruiting companies are beginning to outperform as demand for U.S. labor rebounds.
The newly-created Bloomberg U.S. Employment Services Index -- comprising 17 companies including Robert Half International Inc., Insperity Inc. and Kelly Services Inc. -- has risen 48 percent since Sept. 22, 2011, compared with a 31 percent gain for the Russell 2000 Index of small-company stocks. This follows almost nine months of underperformance, when stocks of these businesses lagged behind the Russell 2000 by 28 percent.
The economy has added 734,000 temporary and permanent jobs between December and February, the biggest three-month increase since May 2010, based on Labor Department data. The pick-up has been broad-based, which indicates a "firmer recovery" is taking hold, said Gus Faucher, senior economist in Pittsburgh at PNC Financial Services Group Inc.
"We are getting into that self-sustaining cycle, where we have job gains driving income growth, driving further consumer- spending growth, driving job gains," he said.
Clients of Troy, Michigan-based Kelly Services are feeling less pessimistic than they were a year ago, when many were making plans in case sales "fell off a cliff," President and Chief Executive Officer Carl Camden said in a telephone interview. Now, their outlooks are consistent with the Federal Reserve, which forecasts a pick-up in business activity in the second half of the year, he said.
"Talking to our customers about their yearlong plans, I do think we're in a self-sustaining recovery," Camden said.
'Welcome Development'
A "wide range of indicators" suggests the labor market has been improving, "which is a welcome development indeed," Fed Chairman Ben S. Bernanke said March 26 at the National Association for Business Economics annual conference in Arlington, Virginia. One of these indicators -- applications for unemployment-insurance payments -- fell by 5,000 in the week ended March 17 to 348,000, the fewest in four years, according to Labor Department data.
The Bureau of Labor Statistics' employment-diffusion index has been above 50 for two years, which indicates more industries are hiring than firing.
The continued positive trend is encouraging because jobs data "affect sentiment for staffing stocks," said Andrew Steinerman, an analyst in New York at JPMorgan. That's because their shares offer a "favorable combination" of secular and cyclical growth, margin expansion and low valuations, he said.
'Substantial Discount'