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STEVEN DREXEL WEIGHS IN
ON ECONOPLAY'S MAY OUTLOOK

Houston, TX - May 29, 2007 - Steven Drexel, president and CEO of CORESTAFF Services, provides commentary to Gary Rosenberger's May monthly payrolls outlook posted on www.econoplay.com. EconoPlay relies exclusively on the experiences of business professionals like Drexel who are in the trenches of economic activity.

The following is the May outlook.

Non-Farm Payrolls:
Recruiters:  May Jobs Seen Flattish, Less Urgency to Hire in Muddled Economy

• A "Funky" Month as Conflicting Economic Signals Prompt Inaction
• Despite a Tight Labor Market, a Surprising Lack of Worker Confidence
• Wages Hold Steady, No Immediate Impact on Pay from Record Gasoline Prices

By Gary Rosenberger

NEW YORK (EconoPlay) May 25 – Employers were hesitant to press the hiring trigger in an economy that’s giving off conflicting signals – or were otherwise stymied by a dwindling labor pool – keeping job orders flat to mildly improved in May, staffing firm executives report.

Recruiters saw the hiring cycle lengthen as companies bought time to crack the economic riddle – whether to pin their hopes on a spiraling Dow, take heed of flattening GDP growth, or just wait a while longer for a perfect candidate to come along.

They’re also keeping a close eye on record gasoline prices and on the subprime mortgage blowout, but most say it will take a while for that to flush through the system and any real dent on payrolls growth is probably months away.

Workers are equally addled by the economy’s mixed messages, accounting for a surprising lack of job security in a tight labor market. In turn, wage demands are meek even as basic living costs rise so spectacularly. A nascent "pushback" in top executive pay also has been spotted.

Tom Bickes, CEO of EmployBridge in Atlanta, specializing in logistics, transportation, specialty manufacturing, finance and accounting, and high-end administration throughout the Sun Belt, characterized the current jobs economy as a kind of tug of war.

"This is a funky time period," he said. "I have noticed that in the last four to six weeks our transportation business has been stronger. There’s more demand for truck drivers. Transportation is usually a good indicator for us, and transportation has been healthy. Our logistics business also was up nicely."

"A Soft Up" in Job Orders

But there are opposing forces at work. “The one thing I have noticed is that our early conversion fees are down – and, to me, that’s an indication of hiring sentiment,” Bickes said. (An early conversion fee is paid by employers when a temp worker is hired full-time prior to the end of the contract. A drop in early conversion fees suggests less urgency to hire.)

April job orders were a "soft up" and May "was a continuation of that," he said. "Our clients still seem positive in their outlooks, and it’s still a very tight labor market."

Bickes regards the current soft patch as the equivalent of 1995 and 1996, when the economy slowed without lapsing into a recession.

"The general trend is for some sequential growth but nothing dramatic. I don’t think payrolls will jump back to the robust March levels," he said. "I don’t think we’re headed into a recession either. The flip side is I see nothing robust in the economy."

Bickes is also heartened by good orders for skilled, blue-collar workers, particularly in industries geared toward exports. And with the supply of these sought-after workers tight as it is, he does see wages "going up quarter over quarter."

Nor does he see the subprime mortgage implosion having a direct affect on his business, "other than to give people another reason to be cautious." Indeed, all this uncertainty could ultimately play in favor of contract labor providers as companies seek a more flexible workforce, he said.

Projects Put Off, Candidate Pools Drying

"We’re seeing slowing," said Scott Leighton, controller at Helpmates Staffing Services in Irvine, California, specializing in logistics, light industrial, and finance and accounting throughout southern California. "We were up double digits since the start of the year, but in May we were only single digits – up just five percent over last year and down sequentially from April."

He sees slowing in a number of categories, including clerical and industrial, "and I’m starting to wonder what’s going on," Leighton added.

He doesn’t think gas prices or housing are at issue. "I tend to think it’s an inability to find the talent," he said. "Overall orders are about the same as before. It’s our ability to fill them that is down. Everyone who is good is working and holding tight. What is left are the less desirable candidates."

But there could be even more to it. "Anecdotally, we hear about projects being put off and hiring decisions taking longer. We don’t know what’s causing it. Is it economic uncertainty or that it just takes longer to hire because there aren’t enough candidates? To a degree, I think it’s the uncertainty."

Leighton reports flat wage pressures, which he finds puzzling. "Wages haven’t changed at all, and I’m a little shocked. I’m scratching my head because it’s so counterintuitive. I would have thought average rates would go up but they’re completely flat," he said.

He drew that conclusion when he compared salaries over the first four and a half months of 2007 against the like period in 2006. "You look at the price of gas, you look at the minimum wage increase we had in California, you look at the tight labor market, and you’d think wages would have moved up," he said.

In fact, only bill rates are up, suggesting employers are willing to pay more, but salaries have not moved, which means workers haven’t been asking for raises. "I’m beginning to think it might be a tight labor force, but it’s not a confident labor force," Leighton said

Charles Sigrist, president of Stivers Staffing Services in Chicago, with 30 branches in 12 states, scoffs at the notion that gas prices would impede job growth.

"Our temps all work within 15 minutes of home, so gas prices have no effect on our business," Sigrist said. He is in a position to know, as 25 of his branches are in suburban areas where cars are essential to get around.

"May, I think, was an average month," he added. "March was better than February and April was as good as March. Now it’s May and it’s just kind of stabilized. We would like to see more orders because we have the college students available."

But while temporary has a flat feel, Sigrist continues to see disproportionately strong orders in direct hire and temp to perm.

Sigrist estimates wages to be up 3% from last year, and his clients continue to resist increases in billing rates. "We had minimum wage increases in Illinois, but it makes no difference to us. There’s no staffing firm in administrative that pays minimum wage anyway. Minimum wage increases mostly affect light industrial."

Mixed Economic Messages

Steven Drexel, CEO of Corestaff Services in Houston, with more than 100 branches in most metropolitan markets nationwide, saw May as essentially flat against April – although his April was better than lackluster Labor Department payrolls data would suggest.

"I actually saw a little pickup in industrial in May. But the clerical piece is still kind of flat – that’s our one laggard," he said.

Drexel sees nothing to suggest gas prices or the subprime fallout had an immediate impact on hiring. "But the combination of the two makes people nervous – not about the here and now, but about how things will be in two or three months," Drexel said. "It takes a while for these things to filter through the economy. It doesn’t show up this soon."

He likens it to the Fed raising interest rates. "It doesn’t affect the economy for six months, other than to immediately inspire concern about the future."

"The Dow at a record high gives people confidence and feel like they’re not facing a recession, so they don’t pull in the reins," he said. "But it also sends a mixed message when GDP growth is down."

The end result is stalemate. "If corporations see profits slowing, it makes them more cautious. At the same time, they don’t want to slash now and not take advantage of a re-acceleration when it comes," Drexel said.

The surprise story for the month might just be a jobs rebound in Michigan, said Todd Palmer, CEO of Diversified Industrial Staffing in Detroit. "I’m on the front line and I see hiring, hiring, hiring," he said. "We are getting requests for general labor as well as for skilled trades. But customers are still taking advantage of the high unemployment numbers and being selective in their hiring."

Even so, Michigan also now struggles with shortages of skilled trades. “My clients are seeking specific, high-end skilled trades and have fewer candidates to choose from compared to a year ago,” Palmer said. “All of the hiring is from smaller companies, less than 100 internal employees.”

The shortage is exacerbated because word of a jobs rebound has not reached workers, and their exodus to other states continues, he added.

Darren Bakay, senior technical recruiting manager at Ajilon-Adecco in New York, which serves New York’s largest financial institutions, said May struck him as a “weird” month.

“My office in general did well, but it was just a moderate month, not off the charts in either direction. I’ve noticed that companies are looking for people but not pulling the trigger as fast. They’re more hesitant,” he said.

Earlier in the month, he was held back by a large merger that led to a number of cancellations. “I’ve had things go away,” Bakay said. “Now at the end of May, it looks like things are picking up. The activity is there.”

Mergers aside, there are no other signs of a slowdown in financial services or information technology. “Nobody is talking about a slowing economy. I haven’t heard talk like that for a long time. No one I deal with is expressing concern about a downturn,” he said. “Wages are still going up. I would say they’re definitely on the rise.”

Most of Bakay’s clients are in Manhattan, where mass transit is readily available, and therefore none are concerned about the price of gasoline. “But I have a handful of clients in the suburbs and, there, three dollar gas is a bit of an issue. I hear about it in terms of people asking for raises.”

Mike Ziman, president of Global Commerce & Information, an I/T consulting and staffing firm in Columbia, Maryland saw good growth in financial services in May. But his firm also has a focus on government work, and “civilian federal agencies seemed flat.”

He sees “definite wage pressures up” but notes the labor pool is being freed up a bit from recent entrants from the auto industry.

He feels good about the record Dow but suspects it might take another four to six months to “really see an impact” from that. Gas prices are a harder read. “It has folks concerned about commuting long distances, but I don’t see telecommuting offices springing up in response either.”

Executive Pay on the Wane

While life remains good in the executive suite, there are a few cracks in the veneer, said Chris Clarke, president of Boyden Global Executive Search in Hawthorne, New York.

“Top executives are in demand and in short supply,” Clarke said, which accounts for Boyden’s North American business having grown by 25% over May 2006.

Mergers and acquisitions are “a big driver of executive search,” he adds. Acquisitions by private equity firms typically mean a change at the top. “New CEOs bring in their own people in key roles, and senior executives often bail from acquired firms and this creates more vacancies.”

But top wages are also leveling off. “There is definite pushback from boards on CEO pay and perks,” Clarke said. “Some nominations committees are strengthening their bargaining position with external hires, which they did not do before.”

They’re also looking to increase the slate of candidates – and just go to the next one, if anyone overreaches. That also diminishes the likelihood of “becoming fixated on a star candidate with too strong a bargaining position,” Clarke added. “Some candidates are being rejected at an early stage as too expensive.”

The U.S. Department of Labor is scheduled to release employment data for May on Friday, June 1 at 8:30 a.m. ET.

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