Wow! After a period of relative quiet the stock market is in a state of flux at the time of this writing. This is not to say what will happen the day after tomorrow, but it is worth thinking about what this means to staffing in general and to ones company. To put things into perspective the market has declined over 10% in a week and 1,000 points at the opening bell on August 24th. This due primarily to China’s declining industrial output and their devaluation, followed by other international concerns, a slower US recovery, etc. However bare 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 then 5 substantial corrections.
So what does this all mean assuming things don’t return to “normal” the next day? 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 fortunetelling, making up what happened to fit the facts. Nevertheless when there is major correction most everyone starts to either freeze or cut spending due to uncertainty. While the risk takers start to buy what they perceive as bargains, thinking they know where the bottom is.
For staffing companies they may see a hiring freeze or even layoffs as has happened already to those serving in the energy sector or export sector. This can impact both direct hire and temps, with usually 2:1 relative impact. Until staffing company’s clients can see which way the economic wins are blowing they will defer adding cost, or even cutting cost. Some staffing companies may reduce their prices to avoid being left out in the cold. This may also be reflected in increasing the number of days clients pay their bills, impacting cash flow. 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 mid sized staffing companies are quicker to take advantage of this.
To see all articles in this series please go to http://optimal-mgt.com/blog.
