US Employment Unemployment Woes

Challenging times remain within the United States employment markets. For the last few months I've harped on the fact that growth within the job market has been relatively weak, especially when one takes into account the supply of new graduates and those that continued to be fired or let go due to the weak economy.

So I've looked through a number of charts from the US St. Louis government site that tells the tale of some of the problematic and in my opinion structural woes that faces the United States.

Robert Half Q4 2009 Earnings

As expected Robert Half (RHI) continues its commitment towards expense management.

Robert Half beat estimates by .04 and revenue of $737.4 million vs. $703.6 million.

However revenue is still down 25+% year over year. It sees Q1 2010 earnings at .03 - .08 vs. .06. While it sees revenue at 725 mil - 775 mil vs. 715.6 mil.

Overall Robert Half continues to manage its expenses far better than its much larger competitors such as Manpower (MAN) which continues to hemorrhage in debt. I will be interested in when Robert Half will be looking to expand its operations.

One point to note is that Robert Half's margins look a bit muted. This continues to be an area to focus on. If the economy continues to expand, Robert Half will look fairly attractive due to its favorable cost and debt management.

Earnings 4Q 2009

A number of large US employment and temporary employment agencies report.

Kelly Services (KELYA) Feb 5 2010 4th quarter and full year 2009
Manpower (MAN) Feb 2 2010 4th quarter and full year 2009
Monster Worldwide (MWW) Feb 3 2010 4th quarter and full year 2009
Robert Half International (RHI) Jan 28 2010 4th quarter 2009

It will be an interesting earnings period for these four companies. I'm sure a number of them may surprise to the upside and beat consensus, however growth remains very much muted in the overall US economy. Emerging markets may face hurdles as their recovery starts to overheat and may need to take the foot off of the petal with their stimulus policies.

Slack hiring

After last week's payroll report hiring remains slack.

• Temporary employment has been increasing. However as an investor beware of the red flags in terms of valuations. The valuations traded by these temporary & human resources are out of kilter with their actual growth. A large number of these stocks have continued to see negative growth. Structural changes in employment take many years before they can be corrected.
• Manufacturing employment continues to decline. This hurts companies such as Manpower (MAN) due to their heavy emphasis in the manufacturing sector.
• The average work week remains at 33.2 hours. Hence if there is a remote pick up in the economy, capacity utilization, along with current work staff will grow. Rather then hiring massive number of temps. Although short term temps look attractive due to the lack of benefits paid out to a majority of temps, temps create low morale and weak productivity on a longer term bases.

Because of the weak outlook by companies for revenue growth open positions, especially permanent positions will be weak at best.

Small Business Sentiment Drops Amid Weak Holidays

The sentiment of U.S. small business owners stalled in December, hurt by weak sales and worries about government policies, according to a survey releasd on Tuesday.

The National Federation of Independent Business said its small business optimism index fell for the second straight month, dropping 0.3 point to 88.0 in December.

"Small business owners are not in a hiring mood because customers are not in a spending mood, the group said. Owners continued to liquidate inventories and weak sales trends gave them little reason to order new stocks."

Source: Reuters

Unemployment rate remains at 10% Dec 2009

With the release of today's numbers the recovery in the jobs market continues to be muted.

• Nonfarm payrolls fell by a seasonally adjusted 85,000 in December.
• Number of discouraged workers rose by 287,000 over the year to 929,000.
• Total hours worked in the economy were unchanged in December. The average workweek was unchanged at 33.2 hours, near the record low.
• An alternative gauge of unemployment, which includes discouraged workers and those forced to work part-time, rose to 17.3% from 17.2%.

Citigroup upgrades Manpower Staffing and Robert Half Staffing Jan 06 2010

SP500 P/E Ratio

"Citigroup analyst Ashwin Shirvaikar issued a bullish note on the staffing sector early Wednesday, raising ratings on Robert Half International Inc. and Manpower Inc. to buy from hold. He cited "improving signs in the temporary employment sector over the past several months" as well as "optimism on the long-term secular trends in the staffing market" for the moves."

Interesting call by Citigroup Research this morning. I agree that layoffs are steady declining with the latest data. However I am still cautious that valuations have gotten ahead of itself. I'm more concerned with the valuations as pointed out in prior posts of Manpower.

• - Manpower continues to trade at a very rich premium at 1.78 P/B. A price to book near one means value. Clearly the market and speculation from analyst believe that Manpower will return to its glory days such as the Citigroup's analyst boosting its price target to 69. As seen in the price chart MAN is trading above it normalized trading range. MAN has traded well above the growth period during expansion, besides the recent credit induced bubble in 2007. The analyst clearly believes that the economy will produce jobs at such a torrid pace that valuations will be fair. I think we have to remember that permanent jobs provide higher margins. Temporary positions do not provide the valuations that would prop up multiplies of close to 90+x earnings.
  
• - Manpower is trading at a clip of 90+x current p/e, 83x this year's earnings, and 52x next year's earnings. Compared to the SP500 and Nasdaq p/e ratio, Manpower (MAN) is significantly overvalued.
  
• - Revenue continues to be in a significant decline from its high of 2007. While debt levels have continued to rise. For this one reason alone I am a bit more positive on Robert Half (RHI) due to its very minimal debt. Any future shocks in the economy will hurt Manpower's cash flow, and cause another possible downgrade in its credit rating.
  
• - Challenges remain with health reform, higher taxes, quantitative easing of liquidity later this year will continue to crimp hiring by small businesses which produce well over 80% of the jobs in the US.
  
• - Manpower's largest market France has stated that they are looking to reduce their debt levels to the EU standard. The stimulus package that they have provided has provided a slight uptick in their GDP. However challenges remain with the continued contraction in the European markets, especially Eastern Europe.

And last but not least Manpower did warn during their 3Q conference call
that they have warned for their 4Q. Irrational exuberance continues in this
market while actual demand from consumers, and tight and inefficient credit
markets persist.

Manufacturing Up, Jobs Continues To Be Down

Unfortunate as production in the US picks up, jobs continues to be a sore spot for the economy. The following chart via Clusterstock continues to point to questions that I've had for Manpower (MAN) which is heavy in the manufacturing sector.