Global services analyst Trevor Romeo, CFA discusses the impact of recent economic uncertainties on the staffing industry, highlighting key trends and challenges faced by companies and exploring the evolving landscape of job openings and the future of staffing.
Podcast Transcript
00:21
Chris T
Hi everybody. Welcome back to William Blair Thinking Presents. Today is April 11th, 2025.
And we are joined by Trevor Romeo. He's an analyst who covers companies in the global services sector with a focus on staff and companies. And this is by no means his first rodeo. Trevor actually joined us a few months back to talk about the North American waste and recycling industry. Glad to have him back. Trevor welcome back to William Blair Thinking Presents.
00:47
Trevor Romeo
Thanks, Chris. Always good to catch up with you. So let's, let's get into it.
00:51
Chris T
Let’s get into it. So given the recent market whiplash and economic gloominess that has dominated headlines these past couple of weeks, I thought it would be worth the conversation around your most recent, proprietary summary of job openings that, you know, you release every month. This is described by you as a report that provides valuable insight into demand trends for companies, industry verticals, and employment categories within the staffing industry.
So to start, why don’t we take a look back at some of the dominant staffing trends you saw throughout Q1? I figured we could do that first and then let's talk a little bit maybe about the future. But, throughout Q1, what would you say was the most consistent thread?
1:33
Trevor Romeo
Well, I think it's a great question. And I think, you know, in today's environment where we've got a ton of uncertainty with, you know, tariffs coming on, coming off, etc.. You know, the answer to this question is probably, you know, changing, but I would say generally speaking. And we'll get it to this in a bit, I think. But the staffing industry has been down really for ten quarters in a row. It's a little bit, you know, different than, than what we've seen in the past related to, you know, staffing typically correlates with the labor market growth and GDP, but it really hasn't lately. So really, we've just seen, you know, for the past ten quarters or so, a lot of companies have, for one reason or another, had a good amount of uncertainty about the overall macro environment.
When that happens, you know, companies usually freeze up, they don't hire as much. And, you know, they let temporary staffing contracts roll off and not necessarily renew them. Temporary staffing is usually one of the easiest ways that companies can flex up and down in their cost structure. So it does tend to be one of the first places that gets hit.
And just we've been in this tough environment for the industry for a while now. And I think that hasn't necessarily changed. I think in the fourth quarter, there was a bit of optimism. You did see a big spike up in some of the business confidence surveys after the election. I think there was some hope about, you know, deregulation and business friendly policies, etc..
And I think in Q1, that quickly started to fade, I think in the last month or two, especially in the last week or two, that's faded considerably, even more. So you know, the big theme of probably the last couple of months has been uncertainty. I attended the, the, you know, I guess the biggest staffing conference in North America last month, and this was before the tariffs were rolled out.
But when there was a lot of uncertainty about them and that was kind of the theme of the conference was just there's a lot of uncertainty. Clients are having difficulties making decisions. And so we're just not seeing a lot of new demand. So that's kind of the theme of of the industry now. I think, you know, the uncertainty is going to continue for at least another couple quarters, in our view.
3:47
Chris T
Yeah. Right. And you know, in terms of, of sector strength, was there any surprising, you know, anything surprising that you saw last quarter leading up to now and then vice versa? Was there anything or I guess, which industry would you say was the softest in terms of job openings? And then I guess my question after that would be, do you see that continuing or, you know, are things vastly different?
4:10
Trevor Romeo
Yeah, that's an interesting one too. I mean, I guess I would say for the specific report that we're talking about today, the staffing monthly open position tracker. So we tend to view that as a good leading indicator for revenue. I think, you know, when a job opening comes on a staffing companies website, it does represent an order from a customer.
Typically, it's probably somewhere around a quarter of a lag between when the when the posting comes on the website to when it actually translates to revenue. So there is a little bit maybe of a disconnect or a lag between the job opening trends and the revenue.
So I would say from a revenue perspective, you know, from a year on, a year over year perspective, the weakest vertical has been, nurse and allied within health care. I think that's been the same story really for the last probably two and a half years, because during Covid there was a huge spike-up and travel nurse revenue. I think that the industry kind of like 5X or 6X’d during that time period. And so that the peak was just much, much higher. So the percentage declines have been bigger there.
And that's continued. Also in health care, the physician staffing market has really been one of the only verticals that's been positive. Physicians and education have both been positive. I think structural shortage of both of those professions and a lot of burnout among the nurse population, too, but I think it's just a little bit of a, you know, peak comparison issue there.
In terms of the job postings, you know, the thing that's maybe surprised me a little bit is in at least in the data that we track, which is, you know, public and private companies across a variety of different staffing verticals, the nursing allied positions, at least on the websites of the companies, have popped up a little bit in the last few months.
They're now up year over year. There's maybe an interesting dynamic there, though, because, you know, when we speak to companies in the industry, we sometimes hear that, we've heard a lot, I guess, that, hospitals are coming in with low bill rate orders, more orders, but at lower bill rates, I guess. So it's more difficult to fill those orders.
So the uptick in orders and job postings hasn't necessarily translated to an uptick in revenue yet. But it's, it's interesting to see that there is, you're not continuing, to be an increase in the postings at least.
06:34
Chris T
Yeah, right. Sounds like it. And some of your recent research, you know, you talked about this divergence between staffing industry trends and then the overall labor market backdrop. You know, typically staffing industry performance is strongly correlated with labor market growth and GDP. But staffing revenue has been down for ten consecutive quarters while, you know, the labor market has continued to grow month after month. What do you think is causing this disparity?
06:59
Trevor Romeo
Yeah, it's a great question, Chris. I think this is a question we get from a lot of our clients nowadays, and really for the past several quarters. It’s a very interesting one. You know, as you say, staffing has typically been highly correlated with the labor market and with GDP. I think in the last ten quarters, you've probably seen a few different things.
I think one is just, you know, Covid was such a disruptive event for so many industries. I think a lot of the, you know, staffing businesses benefited a lot from the post-Covid recovery when you had the, you know, great resignation, as a lot of people called it, with, you know, high labor turnover, very difficult to find people.
And so the staffing businesses really benefit in, in, in an environment like that because they are the experts at finding people when it's tough for companies to do so themselves.
So I think what we saw in a way, was the 2022 numbers for staffing revenue were, you know, I would say they represented an unsustainably high peak to some degree, at least for some of the different industry verticals.
So while the labor market continues to grow, I think we're still probably seeing a little bit of a normalization in the staffing industries. You know, I guess penetration into the labor market from that perspective. So that's probably one reason. You know, I think another reason is we've heard about this a lot from our companies maybe the last two years at this point, labor hoarding, I think going back again to the great resignation, you know, it was a very tough environment for HR departments to manage, trying to find people and retain them.
I think, even though companies have maybe less macro confidence at this point, which ultimately drives hiring, they're not really willing to let people go in this environment. So we had not really seen outside of kind of the government DOGE layoffs we've seen in the news lately. We haven't seen an uptick broadly in layoff activity. So companies are kind of holding on to the workforces they have, even though maybe their revenue doesn't necessarily support it at this point. Just trying to avoid getting back into a situation where if things get better quickly, they have to kind of scramble to get people in sort of a structurally tight labor market with low unemployment and, you know, quitting activity and turnover could spike up quickly. So I think those are a couple reasons. There are probably more. But, you know, it's interesting because typically in the past when you've seen a decline in temporary employment, it could be a little bit of a leading indicator for the overall employment or the labor market and has kind of tended to lead recessions in the past. We just haven't really seen that yet. Because there has been growth of the labor market primarily in, you know, health care has been a big one. Government prior to the last couple of months has been a big source of growth. And then immigration is another tailwind to the overall labor market numbers. We've heard a lot about as well.
09:52
Chris T
Yeah, I know Richard has talked about that at length. This latest note you mentioned that even before the tariffs took hold, and we talked about this a little bit, open position trends suggested a demand environment hesitant to rebound. And then as clients assess potential economic disruptions to companies from implementation of these tariffs, hiring and project activity might be pushed further into the future.
So now that we have an idea somewhat, you know, of what these tariffs look like or at the very least could look like, have expectations changed at all with regard to the hiring market?
10:25
Trevor Romeo
Yeah. I mean this is a this is a tough one for a lot of companies to manage. I think, you know, I'd say the number one high level driver of the staffing industry and I guess hiring activity that we look at is business confidence. If you're confident in your growth outlook, you're going to be more likely to hire more people, expand into new business lines, etc..
And at the same time, you know, if, if, candidates are confident, they're more likely to kind of test the job market out, look for a new job, etc.. And so when you have these tariffs kind of reducing confidence probably on both ends of that spectrum, you know, it's probably just going to lead to again delayed decision making by clients. Less growth planning and growth hiring until they get more certainty. And then I think you could also see on the candidates side, probably people kind of waiting this environment out to see to see what happens for now.
And so I think, you know, that there's just going to continue, I think the rebound in hiring activity, or at least in the staffing industry, that people have been hopeful for, I think likely just gets pushed into probably the next, you know, at least the second half of this year, if not next year. And, you know, I think I've heard from some people in the industry, you know, the uncertainty around what's going to happen with the tariffs maybe is even worse than the tariffs themselves to some degree.
11:51
Chris T
Yeah. Nobody in this industry likes uncertainty. Yeah.
11:53
Trevor Romeo
Yeah. Exactly. I think that's probably debatable depending on, you know, the level of the tariffs. If they're harsh enough then I think if that drives a big recession that's probably a bigger issue. But you could I guess argue even if there is some level of tariffs that remain in place, just knowing what they are will help companies be able to plan a little bit more, rather than just having this chaotic environment where it's, you know, one day is different from the next day, you just really can't make any sort of decisions at all in that type of environment.
So it'll be interesting. But, I think the uncertainty is here to stay, at least for another couple quarters.
12:30
Chris T
So then when you say certainty, just confidence in general, is that the catalyst we're looking for to revive the job market, or is it just too soon to know? Are there other, you know, elements that we have to wait on in addition to that?
12:42
Trevor Romeo
Yeah, I mean, I think simply put that's probably the biggest the biggest thing is more confidence and certainty in the overall economic outlook. You know, and again, I think is it reviving the job market versus reviving the staffing industry. Maybe that's a little bit of a different question. Job market has continued to grow overall. Again, that's been driven a lot by, you know, healthcare has driven a huge amount of the of the job growth when that industry probably is less susceptible to the tariffs.
So, you know, I think if the if it drives a bad enough recession then demand for health care will go down. But generally speaking, you know you're not really going to put off your care. Just because there's an uncertain tariff environment out there. So, yeah. Confidence I think is going to be the biggest catalyst.
I think it's very hard to predict. We kind of been in this, I don't know, no man's land or whatever you want to call it for the last couple of years. And so it'll just can depend on how things play out from a macro perspective. I think that's the biggest thing really.
13:40
Chris T
All right. Well, that’s pretty much all the time we have for today. But before we jump, is there anything else worth noting that we didn't cover on this conversation?
13:47
Trevor Romeo
You know, I think we covered a lot, Chris. I think maybe one interesting thing, I guess I would mention on, actually maybe two things that I would mention with the companies that we cover and how they're kind of evolving. One is, you know, I think we've written about this a lot in our research, but we've seen an evolution from a lot of these companies that, I'd say used to be pure play staffing companies into more holistic providers of human capital services.
But we've seen a lot of growth of consulting type businesses where, you know, maybe in the past you've given a client, you've supplied them with labor to complete their own project. I think more and more, you're seeing clients wanting these types of companies to take on at least a little bit of the project, a deliverable responsibility.
So, that typically leads to higher margins, faster revenue growth for those types of arrangements and just kind of stick to your client relationships. And I think, the merits of that strategy are playing out now because you have seen, you know, I talk about the staffing industry being down for ten straight quarters. We have actually seen some decent performance out of some of the consulting businesses that we cover within our industry.
The last few quarters, going back to positive year over year growth. So I think that's an interesting thing to point out. A lot of the companies we cover are not necessarily just one trick ponies that I think, a lot of the investors tend to lump them into buckets, but they're not necessarily all uniformly representative of those buckets.
And then I guess the other thing I would point out is, is I, you know, it's obviously everybody's buzzword, but it is an interesting debate we have with a lot of investors as well in this industry. Is AI kind of structurally changing, you know, the labor market? Is it structurally changing the staffing industry? You know, I think the jury is still out.
I think overall, you know, we do cover some IT staffing and professional staffing businesses that get we get a lot of questions on this. Overall, I think ultimately AI is going to increase the amount of use cases in technology and such. And our view is over the long term, I think we eventually will get sort of, more demand for, you know, services and staffing.
There could be a little disruption in the near term though. You know, let's say you had three coders working on a, on a project. Maybe you only need two at the moment if, you know, AI can really help you out with, with more efficient coding or something like that. I could see something like that taking place.
I think ultimately, when we're thinking about disruption from AI, you probably would think about, you know, repeatable types of tasks where you're always on the computer, you know, probably like mid-level type white collar roles. I don't think you're going to disrupt the plumber. I don't think you're going to disrupt the nurse with AI, at least in the near term, although it, you know, have seen some kind of crazy sounding articles about replacing nurses with robots, which.
16:42
Chris T
Feels like I might need a human touch, but maybe that's just me.
16:45
Trevor Romeo
Totally agree. You know, my wife is in the health care industry and totally would agree with you there. But, you know, if you're in sort of a repeatable white collar, type of role, maybe there's a little bit more potential for disruption there. But it's a really interesting debate, and I think we'll, we'll have to kind of see how it plays out.
17:06
Chris T
Yeah. I've seen, you know, it's maybe it's more as a support function than it is a replacement function. Right.
So that's all the time we've got. For those interested in reading Trevor’s open position tracker. You can request a copy of it by reaching out to us at WilliamBlair.com/Contact-us.
Thank you for taking the time to be with us today.
17:25
Trevor Romeo
No problem. Chris. Always glad to do this.