Labor Ready (LRW): An economic canary

Temporary staffing agencies are usually a good leading economic indicator, somewhat like modern canaries in the proverbial mine shaft. When companies will not even staff with temporary workers, the short-term economic prospects look dim. Labor Ready Inc. (NYSE: LRW) is an industrial staffing temp agency specializing in general labor, light industrial labor and more skilled trades for construction, landscaping and transportation companies. The company last week released 3Q 2007 earnings that are not encouraging. Granted, some of its business such as landscaping personnel is seasonal, but the results indicate a weakening overall demand for semi-skilled labor in all sectors.

Despite a softening demand, revenue was up 4.4% to $390.7 million, but net income was down almost twice that, 8.5%, to $22.7 million. Revenue for 4Q 2007 is forecast to continue to decline by as much as $45 million. Labor Ready still operates 919 branches, having already closed 47 branches in 2007. Senior management blames decreased demand for temporary laborers on an increase in the minimum wage and continued weakness in both residential and commercial construction. As neither of these factors are within Labor Ready's control, the company can only downsize and control costs until demand for its services strengthens.

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