The economic landscape is rarely static. We navigate periods of growth, stability, and decline. Lately, the current economic climate has shown signs of potential turbulence, with whispers of a recession on the horizon. Many leaders in the staffing industry have expressed growing concerns about the impact a new downturn would have. Clients, too, worry — not just about their own situations but the ability of their vendors to maintain healthy operations to continue supporting them. With the right approach, periods of uncertainty can present opportunities for growth and adaptation.

The Economic Outlook

As part of U.S. Bank’s 2024 Spring Forecast, Rob Haworth, senior investment strategy director at U.S. Bank Wealth Management, said, “2023 was a year of mostly accelerating economic momentum instead of what many anticipated would be slowing growth. The primary reason for this is that consumer spending remains strong, which is driving the consistent growth we’ve seen.” 

Additionally, exports of goods, federal, state and local government spending, and nonresidential, residential and private inventory investment propelled fourth quarter growth. GDP reports throughout 2023 provided encouraging signs that the Fed may have achieved a “soft landing” for the economy, staving off a recession. But uncertainty about the economy’s staying power persists.

In February, economist David Rosenberg's "full model" suggested that there is an 85% chance of a recession in the U.S. economy within the next 12 months. This is the highest reading since the 2008 financial crisis, and is in contrast to earlier predictions in 2023 that estimated only a 12% chance of recession. Rosenberg has raised red flags against repeating the mistakes of past economic bubbles, and has criticized the chorus of experts who have dismissed recession concerns.

Understanding the Impact of a Recession on Staffing

Recessions can have a significant impact on the staffing industry. As businesses tighten their belts and look to reduce costs, hiring often takes a backseat. This can lead to a decrease in demand for temporary and contract workers, which has consequences for staffing suppliers.

• Reduced Hiring: Businesses may become more cautious about hiring new employees, both temporary and permanent. This can lead to a decrease in overall demand for staffing services.
• Increased Competition: As competition intensifies, staffing agencies may need to lower their margins to win contracts. This can put pressure on profitability.
• Client Consolidation: Companies may consolidate their vendor base, working with fewer staffing agencies. This means you'll need to stand out from the crowd to maintain your client relationships.

However, recessions are not all bad news. There are some instances in which a potential economic downturn doesn’t portend disaster for staffing firms.

• Increased Demand for Cost-Effectiveness: Companies may be more open to temporary and contract staffing solutions as a way to control costs and maintain flexibility. This can be a great opportunity for staffing agencies to showcase the value proposition of temporary staffing.
• Focus on Efficiency: During a recession, businesses often become more focused on efficiency. This creates an opportunity for staffing agencies to offer solutions that help companies streamline their workforce management practices.

Strategies for Success in Turbulent Times

By proactively preparing for a potential economic downturn, staffing providers can sustain their businesses and commitments to clients, with some emerging stronger on the other side. Here are some key strategies staffing leaders can take to ensure that their support for clients and MSPs stays strong.

• Diversifying Client Rosters: Reliance on a single industry or type of client can leave firms vulnerable during an economic downturn. Spread the risk by diversifying client portfolios across different industries and company sizes. Target industries that are historically recession-proof, such as healthcare or government.
• Focus on Building Strong Client Relationships: Building trust and strong relationships with clients is crucial during any economic climate, but especially during a recession. Work closely with clients to understand their evolving needs and provide solutions that address those needs effectively.
• Become a Strategic Partner: Go beyond simply providing temporary workers. Savvy leaders position their agencies as strategic partners, offering expertise in workforce management, talent acquisition, and compliance. Offering additional services like skills gap analysis, outplacement assistance, or upskilling programs also add value.
• Embrace Technology: Technology can be a great ally during an economic downturn. Investing in tools that streamline the recruitment process, improve candidate matching, and enhance communication with clients and workers are essential. Most recently, staffing providers have been on the search for solutions that leverage AI to personalize the candidate experience and improve efficiency.
• Sharpen the Talent Pool: In a recession, the quality of the talent pool becomes even more important. Forward-looking staffing suppliers focus on attracting and retaining top talent by offering competitive pay packages, attractive benefits, and opportunities for professional development. They also invest in building a strong employer brand to attract the best candidates.
• Refine Hiring Process: During a recession, agencies need to ensure that they’re placing the right people in the right jobs. Refining screening and interview processes will help identify candidates with the specific skills and experience clients need.
• Emphasize Cost-Effectiveness: During a recession, cost becomes a primary concern for businesses. Highlight the cost-saving benefits of temporary staffing compared to hiring full-time employees, such as reduced payroll taxes and benefits costs. Offer flexible pricing models and consider offering bundled services to provide greater value to cost-conscious clients.
• Focus on Data-Driven Decision Making: Data is our friend. Wise staffing leaders use analytics to track trends, identify areas for improvement, and make informed decisions about staffing strategies. They invest in tools that deliver insights into client needs, industry trends, and competitor activity.
• Prepare for the Rebound: Recessions don't last forever. While it's important to focus on weathering the storm, don't lose sight of the future. Staffing providers should continue to nurture relationships with their clients and talent pools to remain well-positioned to capitalize on the economic rebound. They explore ways to expand your offerings in anticipation of future growth, such as entering new markets or offering additional specialized staffing services.

Communication and Transparency

Open communication is key during times of economic uncertainty. Communicating effectively with clients, MSPs, and talent during a recession are imperative.

• Be Proactive with Clients: Solid staffing partners will anticipate their client's needs and concerns. They schedule regular meetings to discuss their evolving staffing needs and how the agency can continue to support them during challenging times. The key is being transparent about potential challenges and working collaboratively to find solutions.
• Offer Guidance and Support: Clients and MSPs should encourage staffing partners to offer guidance and support in navigating the fluctuating economic landscape. They can share industry insights, provide workforce management best practices, and communicate effectively about labor market trends. This will solidify their role as a trusted advisor.
• Communicate Early and Often with Talent: Staffing suppliers should also communicate openly with their talent pool, even if news isn't always positive. They can reiterate and strengthen their commitment to finding workers placements while offering support services, such as resume workshops or career coaching, to help them navigate the job market.
• Focus on Empathy and Understanding: Staffing companies should acknowledge the challenges candidates will face during an economic downturn. Offering resources and support, while empathy for their job search journeys, will help maintain loyalty and solidify the firm’s position as a trusted partner.

Emerging Stronger

Economic downturns are inevitable, but by being proactive, adaptable, and innovative, staffing agencies can not only survive but thrive during these challenging times. Despite the negative impacts, recessions often present opportunities alongside challenges. By focusing on building strong client relationships, offering strategic solutions, and leveraging technology, staffing providers can establish themselves as an indispensable partner for clients and MSPs during uncertain economic periods. 

‍Photo by m. on Unsplash