Hays PLC (LSE:HAS)’s profit warning on Tuesday delivered a short-term blow to shareholders, with the FTSE 250-listed recruitment firm approaching three-year lows in early trades.
But the underwhelming trading update, in which Hays reported a 12% year-on-year decline in group fees, has wider implications for the UK employment sector, which has shown remarkable resilience during an uncertain economic cycle.
AJ Bell investment director Russ Mould stated: “Company management is unsure as to whether this is just a blip, caused by deferred decision making, or a sign of a more sustained slowdown in the jobs market, but equity investors will be hoping it is the former given how share prices are discounting a soft economic landing rather than a hard one.”
Unfortunately for investors, weak sales in Hays’ temporary division serve as a warning for the wider UK employment sector.
According to Mould: “When they are feeling confident, firms will focus on permanent hires. When they are not, they may be more careful and switch to hiring more temporary positions, to give themselves greater flexibility should trade deteriorate any further.
“A decline in temporary hiring activity could therefore be a warning of a wider softening in the labour markets, a scenario which stock markets are not currently entertaining.”
Thankfully, Mould pointed out one positive to take from Hays’ results- the rate of decline in permanent hiring did not get any worse in the second quarter.