Staffing firms perk up as companies dust off old projects

A tentative turn in staffing

After a long dry spell, hiring agencies in the US and Europe are getting busier as businesses revive projects put on ice. UBS analyst Joshua Chan called it a "reluctant improvement," noting that firms want to resume work even without a big macro rebound.

The US data backs it up: the Bureau of Labor Statistics shows year over year growth in temporary employment since June. In step with that, Robert Half Inc. and Kforce Inc. offered outlooks that topped forecasts. In Europe, Randstad NV, Michael Page Plc, and Robert Walters Plc also pointed to better conditions, and Michael Page posted its first quarterly gain in gross profit since 2022. Chan added, "We have seen several quarters of stabilizing and improving results, and you're just at a better starting point heading into 2027."

Margins are the weak link

Here is the catch. Gross margins - the spread between client billings and the direct cost to place talent - remain underneath the highs from the post pandemic hiring boom, and even below much of the 2010s for many firms. ManpowerGroup Inc. maintained organic revenue growth, but its outlook failed to impress.

In the third quarter, Randstad's margin was tighter by 60 basis points. RBC's Andrew Brooke and Karl Green called the company's guidance "a touch disappointing," and they see margin improvement coming only slowly through 2028. One key drag is permanent placement, which typically carries richer margins than temp work and is still soft. Bloomberg Intelligence's Stuart Gordon summed up the dynamic: in prior rebounds, higher volumes quickly lifted profits, but "That's not happening this time."

New tools and fresh perspectives can quietly sharpen an investor's edge. We're hosting our first ever investor livestream on 11/17 to show you how to use ChatGPT and Claude to invest like a pro, hosted by Briefs Finance CEO Jaspreet Singh. Save your seat.

AI cuts both ways

Artificial intelligence is shaping both demand and delivery. Several large employers - Bank of America Corp., Synchrony Financial, Citigroup Inc. and Accenture Plc - have said AI trims hiring needs while boosting productivity. As Bank of America CFO Alastair Borthwick put it on the latest earnings call, "We don't need to hire quite as many people to refill roles," thanks to efforts to "automate processes and simplify work."

Recruiters are leaning on AI too. Randstad is rolling out AI agents to source candidates and reduce time consuming calls so recruiters can spend more time with clients, CEO Sander van't Noordende said after earnings. At Robert Walters, CEO Toby Fowlston said AI handles routine tasks like writing job ads. Still, Gordon cautioned that established players may face tougher competition and thinner profitability, saying, "Margins in the new world will be less than the margins they were making before" and "They're going to have to fight harder for the top line."

Why it matters for your portfolio

The industry looks early in a turn: volumes are stabilizing and some guidance is improving, yet margins are lagging and may only grind higher over several years. Chan said margins should get a lift as permanent hiring revives. He also noted AI could make direct hiring easier, yet as needs shift with economic uncertainty, companies may prefer temporary workers, and recruiters continue to provide access to large pools.

Not every role is safe from automation - Chan pointed to entry level legal services and coding as likely areas of lower demand - but he emphasized that demand for human skills "hasn't gone away." For investors, that means revenue can recover before profitability does, and AI is likely to reshape where staffing firms capture value rather than eliminate it outright.

Keeping curiosity about changing practices helps investors uncover better long term choices. On 11/17, our CEO Jaspreet Singh goes live for our first ever investor livestream on how to use ChatGPT and Claude to invest like a pro. Register to join him.