Planning and Preparing for Economic Changes in 2025: Insights from Advance Partners and Staffing Industry Analysts

Recently, Advance Partners and Staffing Industry Analysts (SIA) sat down for a conversation to explore the evolving economic landscape and how staffing firms can prepare for the upcoming year. With shifting regulations, fluctuating economic indicators, and evolving workforce trends, the webinar provided a comprehensive look at what staffing companies should expect in 2025.

In this recap, you will find insights from Senior Director and General Manager Jeremy Bilsky as well as SIA economist Michael Schultz on what’s going on in the economy and how staffing owners can prepare for what’s ahead.

Here is a recap of what was discussed:

Recent Economic Trends

Michael Schultz started off with a recap on recent economic trends and statistics. While 2024 was weaker than ’22 and ’23, he explained that it remained quite strong considering how slow the recovery was from the Great Recession and financial crisis. Even with the slowdown, growth was pretty good. Employment increased over the course of the year by 2,100,000 for those on payrolls.

“And that’s an increase of 1.3% versus 2023. The unemployment rate, however, increased by 40 basis points, up from 3.6% on average in 2023. And then similarly relevant for staffing is that job openings declined by 14%. Not something you can really expect when the economy is growing so well. It’s a big number.”

He also noted it’s been an unusual mix of what sectors provided employment gains. Overwhelmingly, the gains were in healthcare and secondly in the government sector. But even there, 10% of those gains were also healthcare.

Staffing vs the Overall Economy

While the broader economy continues to show some growth, staffing firms are facing unique challenges. By the Bureau of Labor Statistics (BLS) count, staffing saw a decline of 8%.

“Given the GDP figure, you would expect that staffing revenue would be up 6% or 7% in 2024. Instead, as of September, our forecast had 2024 down 10% on revenue, and we have the final number from the BLS down more than 8%.”

So what’s going on? According to Schultz, most basically, the staffing industry is following the deceleration in the overall labor market. But there’s been a larger deceleration in staffing than you would expect to see.

“The unemployment rate increased by 40 basis points last year, and job openings decreased by 14%. Well, hiring slowed down even more than job openings. And combined, you get this uptrend in the vacancy yield, which effectively, you can think of the vacancy yield as a whole economy fill rate. How many people were hired in this time period versus how many job openings employers were trying to fill in the previous time period. And a higher vacancy yield basically says that labor is more available relative to employers demand for additional workers.”

So as availability of workers increased, it made it easier for companies to do their own recruiting.

“And if it’s getting easier to do your own recruiting and now you’ve gotten accustomed to having a horrible slog of it from all the labor shortages in 2020, 2021, maybe your perspective is, well, it’s getting easier, we can continue doing it ourselves.”

Positive Trends

Despite some setbacks, the industry is seeing pockets of improvement. There has been recent growth in industrial staffing, particularly in logistics and warehousing, driven by changes in trade policy and preemptive purchasing in response to potential tariffs. But Schultz warns that it might be a more temporary trend.

“Industrial actually saw growth at the end of 2024 which was very welcome, and I think this is what’s driving the few months of gains we saw in the BLS figures. But there’s also a lot to suggest it’s a bit of a blip, a bit of a flash in the pan. After the election with anticipated changes in trade policy, a lot of consumers went out and bought things that they thought would be impacted by tariffs, things like cell phones, computers, vehicles, and also businesses thought, our production costs might go up, so we are gonna fill our warehouses as much as we can for any imported parts we need right now.”

Schultz said that IT staffing is experiencing positive organic growth which might be more sustainable. However, sectors like healthcare and commercial staffing are still normalizing after the pandemic surge.

Staffing Client Trends

Jeremy then weighed in on what he has been hearing anecdotally from staffing clients, indicating that clients are tracking fairly closely with the overall data. Advance Partners works with staffing firms that represent about 4% of the total U.S. staffing industry. He also mentioned that there has been a loss of the value proposition for staffing.

“I’ve talked to a lot of lot of staffing owners that agree with this statement – I think that there was sort of a loss for the value proposition of what these great staffing firms provide the buyers. The dramatic escalation in wages that just happened virtually overnight, you know, a buyer of staffing could get, you know I’m just making up the numbers, but $10,000 a week in billings, they could get 10 people. Now that $10,000 is giving them eight. And I think that has contributed to a lot of the numbers that you’re seeing here below the line.”

He mentioned that the way forward is to remind buyers that staffing is a good way to go and can be a “shock absorber” for the labor market.

Schultz then weighed in that some of the disconnect between staffing and the overall economy versus what you historically expect is from compression of bill rates versus the direct higher employment costs.

“Historically, you had more of a cost savings motivation for clients making use of staffing services than the current environment is going to encourage.”

Forecasting the Next Few Years

The outlook for the next few years points toward continued economic challenges. The expectation is that GDP growth will slow, inflation will remain high, and interest rates will continue to plateau at around 4%.

“So essentially, across the board, we have a theme,” said Schultz. “The survey of professional forecasters respondents expected higher GDP growth in 2025 as of February versus what they were projecting in November. But then also, if you don’t get enough of a slowdown in consumption spending, you have persistently elevated inflation. You get this trade off on inflation and activity.”

The forecasts for GDP growth indicate trading longer term growth and stability for more activity right now. But higher inflation and tightening of policy to combat inflation, could lead to increased unemployment over the next few years – unfortunately not supportive to staffing.

These macroeconomic factors will likely keep labor costs elevated and financing expensive, both of which will impact staffing firms looking to maintain growth.

Jeremy mentioned that the treasury group at Paychex, their parent company, is predicting two rate drops this year and maybe going into next year.

“But you know, no one has a crystal ball. But the expectation is that if they do to continue to come down, at most another hundred basis points and then staying right there, the days of of money being extraordinarily cheap for banks to lend like we had in the past couple decades, are probably in the rearview mirror. So we need to adjust our expectations, and plan accordingly.”

Key Takeaways for Staffing

Summing up these findings, here’s is a breakdown of what staffing firms can expect:

Labor Market Weakening: Staffing firms can expect a weaker labor market in the coming years, with higher unemployment rates and less hiring activity.

Ongoing Wage Pressure: The pressure on wages will continue, potentially squeezing staffing margins.

Little Relief on Financing Costs: With interest rates plateauing at 4%, staffing firms will face higher costs for financing.

High Levels of Optimism, but Also Uncertainty: Schultz mentioned that while there is a high level of business optimism, uncertainty seems to be winning out.

“So everyone’s kinda sitting on their hands going, what’s gonna happen now before committing to new projects, investments, and initiating any new programs or going back to contingent staffing. But that might subside. We could always see that flip to the optimism winning out, and that would provide a nice tailwind supporting demand for staffing activity. Just right now and so far, it’s the uncertainty in the driver’s seat.”

Jeremy mentioned that uncertainty can be a good case for contingent staffing.

“I suppose I should highlight as well that uncertainty can be good for use of contingent staffing because that increases the importance of having flexibility in your activities. So once the optimism starts to win out, really hoping that clients and broader business communities will say, we really want to go back to our staffing partners because we’re still a bit uncertain.”

What’s Coming in 2025

Tariffs

Recent changes in tariff policies are set to impact industries reliant on imports. The U.S. has implemented new tariffs on goods from Canada, Mexico, and China, which could lead to increased costs for manufacturing and logistics. The direct effects on the staffing industry will vary depending on the exposure of clients to these industries. Staffing firms serving manufacturing, warehousing, and logistics sectors need to monitor how these tariff policies evolve and adjust their client portfolios accordingly.

“What I think we need to we as a community need to be focused on is what’s this gonna do to the labor market?” Jeremy mentioned.  “Is it going to stimulate or decelerate employment? Is it gonna reduce production? Are more factories and different outlets around this country, are they gonna need temps or are they gonna not need it because businesses are cutting back in response to higher cost? We don’t know, but it’s certainly something we all need to watch.”

Immigration

Changes in U.S. immigration policy, particularly mass deportations, are already having significant effects on industries like construction, agriculture, and light industrial staffing. Many staffing firms are seeing challenges in sourcing talent, especially for roles reliant on immigrant labor. The H-1B visa program, which is critical for IT staffing, is also under scrutiny, which could lead to further tightening of the workforce. Staffing firms should remain vigilant and adjust their recruitment strategies to address potential labor shortages.

Jeremy mentioned that AP clients are already feeling the effects. “Fully expect and actually and certainly already have talked to clients that are saying, yeah. It’s been challenging. It was not easy before. It’s a little bit more difficult now.”

Diversity, Equity, and Inclusion (DEI)

The landscape for DEI initiatives is shifting. The recent executive order restricting DEI initiatives among federal contractors could impact staffing firms working in government contracting. However, many private companies are continuing or even increasing their DEI efforts. Staffing firms must navigate these changes while maintaining compliance with existing DEI requirements and adjusting their strategies as the legal landscape evolves.

Federal Hiring

A recent executive order to cut federal workforce size by offering buyouts to employees is impacting federal contracting staffing firms. The hiring freeze and the downsizing of the federal workforce are likely to decrease demand for staffing services in this sector, at least in the short term.

Jeremy mentioned that new opportunities in government contracting might be hard to come by in the short term.

“I think in the end, I think they’re going to continue, but, they might not be winning new opportunities, in light of the second order coming down or related order signaling an immediate hiring freeze on all federal hiring. So, just stopping hiring dead in its tracks. And the expectation is that that’s likely going to decrease, demand at least in the in the short term until things are sorted out here. So, definitely something to watch. And this is another one that’s changing by the millisecond.”

What Can Staffing Owners Do?

Staffing owners must stay agile and proactive in light of these economic uncertainties. Jeremy talked about both tactical and emotional decisions staffing leaders are making during uncertainty. Here are key actions staffing firms should consider:

Diversified Client Base: Ensure your client base is not overly reliant on any single sector, particularly federal contracts.

According to Bilsky: “On the tactical side, it’s always a good idea to diversify your client base. But especially if your primary sourcing is federal contracts, I would carry this over to any large corporate space, because the buying habits of many of these corporations that I mentioned a moment ago could be, at least in flight.”

Prepare for I-9 Audits: Be ready for potential I-9 audits by ensuring all workers’ documentation is up-to-date and compliant.

“This is something that I’ve talked to with clients for years,” Jeremy mentioned. “It’s just a good practice to have. You just never know. Act as if someone showed up on your door one day from the government and see how you do. Do you do you pass muster? Do you pass your own I-9 test? Do you have everything all your all your ducks in a row? It’s a good idea. Like a drill.”

Stay Engaged with Local Officials: Regular communication with elected officials can help staffing firms stay ahead of regulatory changes.

“We’re all constituents of whomever represents us. Stay in his or her ear just to keep them apprised of what’s happening because they want to know,” said Jeremy. “They should want to know the impact that some of these measures are having on them. Especially if there’s a potential for having a contracting effect on the labor market, people are going to want to hear about that, especially elected officials for whom the state of the economy is frequently a bellwether for electability.”

Focus on Employee Engagement: With increasing uncertainty, maintaining a positive work environment and ensuring your workforce feels secure is crucial for productivity.

“Be there emotionally,” said Jeremy.  “It’s smart business practice for all of us in our businesses to be very intentional about our people. Making sure they’re doing okay. Helping them mitigate any potential fears that they have, that, you know, the layoffs are coming or that they should have any concerns about coming to work. That’s the last thing we want them to do.”

Conclusion

The economic outlook for 2025 is marked by uncertainty, rising inflation, and potential regulatory changes that will impact the staffing industry. Staffing firms will need to diversify their client base, remain agile in the face of changes in immigration policy, tariffs, and DEI initiatives, and stay informed on federal hiring developments. By preparing for these shifts, staffing firms can position themselves to navigate the challenges ahead and continue to thrive.

Q&A

Q: I’m exclusively working in federal contracts and looking to diversify these after these new executive orders. What should I do first?

Jeremy: “Well, I think that’s a that’s a good idea. Good idea to diversify like we talked about. I would look at the skill sets of the of the folks that you’ve been placing with the federal government and seeing what kind of crossover capability they have in the private sector.

I think that could be very interesting. So, one that one that comes to mind, we’ve had clients that have worked in the health space with the Department of Veterans Affairs, which even there, there’s talks of cutbacks. Health care health professionals in that space, you know, they probably have different credentials, but what can they do? Where else can their talents be utilized? And I would think of the staff that you employ as, they’re probably not quite as quite a Swiss army knife in terms of being able to do everything, but at least taking some of their core competencies of what they have and trying to discern, okay, if I have 10 people over here, where can they look like somewhere else?

And really and keep that workforce engaged too if there’s gonna be some cutbacks in that in that government space. If you’ve been serving the government for a long time, you’re pretty well battle tested to deal with large corporations too because RFP completions for large corporations, they actually might be a little bit easier than than RFP for the federal government. So, you may not think it, but you’re more than qualified to take a dabble in in that space too. I think you’ll do just fine if you’ve if you’ve survived the rigors of federal RFPs.”

Q: Do you expect immigration policies to have an effect on healthcare staffing within in the within the international nursing market?

Michael: “So I think it’s worth highlighting that within the administration, there are some significant disagreements across officials and advisers as to what specific changes to make on immigration policy. I believe Jeremy mentioned the H-1B visa program earlier. So I think we can take that as a signal for what might happen with things like, international nursing. Some members of the administration want the H1-B visa program completely ended, zeroed out, all visas gone. Other members want that program expanded dramatically, and it kinda comes down to what are the individual, advisors and officials’ backgrounds in where they’ve worked and what their companies have been engaged in in the past. So I think that skilled immigration through specific targeted visa programs like international nursing uses will be relatively unimpacted.

But back to, uncertainty as a watchword, depending on who wins the argument within the administration as to what to do with those kinds of visa programs, it could be curtailed significantly. But I think that’s relatively safe at the moment.”

Q: How can a staffing firm communicate our value to clients with the status of the economy and everything right now, with clients being somewhat hesitant and cutting back?

Jeremy: “I think assuring them that they’re getting a quality product is always important, you’re gonna get great people from us. We vet them. We screen them, where applicable. We make sure they have the proper skills, to be a nice addition to your workforce. I think I mentioned earlier the loss of vision on the value prop that that staffing firms bring to the buyers of their services. And I think this goes right to the heart of that. You’re getting a quality product. You’re not overpaying for it. You’re paying the right amount. We’re finding you people because we’re good. That’s what we do. We’re good at it, and you need our help to do it. And you’re gonna get someone who is gonna have a positive impact on your business. I think I think amplifying what they’re getting in the way of quality, I think it’s so important.

And, you know, it’s not just a numbers game. You know, if you’re looking for 10 people and we can only find six good ones, we’re going send you six good ones. But those six people that hit the mark of what you’re looking for, you’re gonna get high quality. And I think assuring them of that and then and then making sure you back it up. You’ve got to deliver.”

Q: When can we expect staffing the staffing market to go back to normal?

Michael: “I think we need to see reacceleration in the labor market, and that is not presently something being forecast by much of anyone for the next few years, unfortunately.”

Q: How do you think AI will impact the staffing industry?

Jeremy: “I think candidate fulfillment –  the candidate reviewing and sorting – with the right AI tool, it’s a lot more effective than a pivot table in Excel. And I’ve heard a lot of successes there. We all know that with staffing firms, speed, fill rate, fill rate percentages, and timeliness is so important, and I think that’s probably the most effective area where AI can be useful. To be candid, a lot of the conversations I’m having with owners and operators, there was an expectation to have more options at this point, in the in the availability of product set. So I think that’s still gonna be evolving. And we all know that there’s no one size fits all. But I think the space is right for AI assistance. And winning a job, winning a deal because you were able to fill it faster, again, with the right person, quality, but using the AI tool to help you get there. And let’s face it, if it can help minimize some of your internal expenses, if you can have three recruiters instead of five, because the tools are more on point, then that’s certainly helpful.”

Michael: “I agree that probably the most direct and definitely the most immediate opportunities for staffing given, new developments in artificial intelligence, especially large language models and other forms of generative AI, are gonna be top of funnel efficiencies. There’s a whole lot of companies out there that have developed AI voice and chatbot recruiting agents that can handle doing the first contact and screening. I’ve not yet heard a single staffing company who’s used those, have anything but extremely positive happy things to say about them. Then there’s a bit of a back and forth, I think, with, say specialized and purpose built tools work a lot better at accomplishing whatever task you’re trying to do than a generalized, let’s go to this off the shelf product that has not been customized for our use case.

For those general ones, what I would advise is that large language models remember, they’re text prediction engines. They don’t reason. They don’t understand. They don’t know context or subtlety. They’re just predicting the next string of text given their training data and the input prompt and other parameters given to them. So especially for more off the shelf things that have not been customized to a specific purpose or to, directly relevant data, I’d advise that, they’re most appropriate when the consequences are somewhat low stakes if they get it wrong. They you don’t need something that is always accurate or must have accuracy as a high priority because they do get things wrong pretty frequently. And likewise, better suited when the output can be readily verified, checked, or dismissed without much effort.”