Investors’ indifferent reaction to this morning’s UK job market data illustrates the challenges British recruitment firms could face as employment markets hit saturation point.

Buoyed in recent years by a tide of new hiring, UK employment is at its lowest level since 2008, vacancies are at their highest levels in 15 years and the economic inactivity rate is the lowest since the late 1980s.

Recruitment firms Hays (HAS), Michael Page (MPI), Robert Walters (RWA:AIM) and SThree (STR) have all profited handsomely from a rising in-work population.

HAS - Comparison Line Chart (Rebased)

In our view, an important question for the rest of 2015 is whether they can profit as significantly when that tailwind stops blowing.

News today, published by the Office for National Statistics, that 114,000 more people were work in three months to end-April was welcomed with caution by markets.

Michael Page and Hays fell around 1% while Robert Walters added 1.8%.

Revenue at recruitment companies is driven principally by churn – the rate at which people move between jobs – rather than pure growth in the at-work population, says analyst Steve Woolf at broker Numis.

That growth has been a tailwind in recent years, he concedes, but is not the main driver of profitability.

As the growth rate of in-work employees falls, a slight negative for recruiters, wage growth often starts to pick up which is usually a positive, he explains.

Issue Date: 17 Jun 2015