logo-loader
viewRobert Walters

Recession alarms ring as recruiters signal stormy skies

Symptoms of a global economic slowdown ahead continue, with companies curtailing their hiring across major markets worldwide

Robert Walters -

Warnings from two of the UK’s leading recruiters that employers have put the brakes on hiring has taken market fears of a major economic downturn into overdrive.

Employment is a lagging economic indicator because it reflects decisions taken by staffing managers six to twelve months earlier – and, as such, show the road, side alley, or dead-end the economy has started down.

At least, that’s what economists are worrying after recruitment specialists PageGroup PLC (LON: PAGE) and Robert Walters PLC (LON:RWA) slashed their full-year profit expectations.

“Heightened Brexit related uncertainty is now impacting candidate and client confidence at all levels”, said PageGroup as it posted a 4% drop in its British flagship operation and cut its profit outlook by 10%.

Robert Walters was even worse hit, with its UK business declining 11% in the last quarter, saying it no longer expects to grow on the previous year.

The news predictably sent shareholders into a tailspin, but more importantly amplified recent fears that the global economy could be entering another slowdown.

Recruitment woes are even more concerning at a time when trading conditions are deteriorating across major markets, with Hong Kong protests ratcheting up tensions, US tariffs on European goods expected to kick in mid-October, and Boris Johnson reaching a stalemate in Brexit negotiations with the European Union. 

An analyst at UBS said that PageGroup’s numbers are a good bellwether for employment since the company focuses on permanent hires rather than temporary.

Companies consult their longer-term twelve-month outlook when they make permanent hires, which means that when managers think there’s just a “pocket of uncertainty ahead, they will still hire”, says the analyst, “but if they believe it’s a sustained period, then they start to adjust”.

Paul Dales, chief UK economist at Capital Economics agreed that the recruitment lag showed “concerns over the health of the global economy are translating into businesses deciding now’s not the time to take on more costs”.

UK has seen strong job growth in the past two years, but according to Dales in times of uncertainty it makes more sense for a growing business to employ people, as opposed to taking on large capital investment projects because, in the case of an economic downturn, “it’s easier to get rid of a few workers than to get your money back from a big investment”. 

Dales says that announcements like PageGroup and Robert Walters’ slumping revenues show that now “businesses are just postponing hiring people, as well as not doing investment” – which could have knock-on effects into the next few years.

He holds that things could change very quickly after Brexit. Hiring and investment has been put on hold until the future trajectory is clear – once it is, investment could flow in faster than expected. 

But it’s not just the UK that has problems. 

According to new IMF head Kristalina Georgieva, the global economy has already started a “synchronised slowdown”, with companies haunted by high levels of debt at a time when the trade wars are threatening to scrub out as much $700bn from global GDP by 2020. 

The German economy has been buckling under pressure from its manufacturing sector, reporting negative growth in its second quarter thanks to falling demand for goods.

Arno Hantzsche, the head economist at National Institute of Economic and Social Research considers this a bad omen since manufacturing tends to be a “leading sector for the rest of the economy”.

According to Hantzsche, policy-makers are worried over a global recession caused by the weakness in manufacturing spilling over into the services sector, which is generally sheltered from global marketplace volatility.

Hantzsche says that if employment numbers fall in service sectors, that would be “a strong indicator” that a global recession is on the cards.

Fears that Britain could slip into recession, which is defined as two consecutive quarters of falling gross domestic product, were recently stoked by the 0.2% decline in output in the three months to June.
 

Quick facts: Robert Walters

Price: 517 GBX

LSE:RWA
Market: LSE
Market Cap: £392.77 m
Follow

Add related topics to MyProactive

Create your account: sign up and get ahead on news and events

NO INVESTMENT ADVICE

The Company is a publisher. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is...

FOR OUR FULL DISCLAIMER CLICK HERE

Watch

PCF Bank's Scott Maybury reports on strong lending growth and increased...

PCF Group Plc's (LON:PCF) Scott Maybury speaks to Proactive London's Andrew Scott after the specialist lender posted record numbers in its latest year. Loans outstanding rose 55% to £339mln with profits for the twelve months to September climbing by 54% to £8mln. Maybury says targets for a...

9 hours, 28 minutes ago

4 min read