THE RECRUITMENT industry sails out ahead of the fleet - the industry contracted ahead of the wider economy this year, shedding 25 per cent of its employees. But it's also among the first to feel favourable conditions, as firms hire in preparation for better times. So what's the outlook for 2009?

"It's looking bleak," says Frank Collins, head of the National Recruitment Federation, which represents about 130 recruitment companies, including the State's largest job-filling firms.

"We typically tend to lead the economy by up to six months - things started to get tough for some sectors as early as mid '07, for certain sectors. Certainly the construction sector, but also the financial sector," he says.

The recruitment industry surged to its peak of about 13,000 employees during 2007 and contracted to about 10,000 this year.

"If another 2,000-3,000 employees went, I wouldn't be surprised," says Mr Collins.

"The uncertainty over '09 is killing everybody," says Mark O'Donnell, director of executive selection at Deloitte.

"There's very little activity because companies are so nervous. The people who are willing to move jobs are thinking, 'am I jumping from the frying pan into the fire?', and they're holding on."

"I don't think people know what's going to happen next year," says Shay Dalton, the head of Lincoln Search and Selection.

"The difference between this December and the Decembers of the last four to five previous years is lack of confidence," he says.

Job losses are not evenly spread across the recruitment industry, says Maireád Fleming, director of Brightwater, a large, high-end recruitment firm.

"It's the small guys who are going under," says Ms Fleming. "The one-man band teams, or with six or seven staff, are struggling with cashflow.

"We laid off staff back in June, when we sensed what was happening. We let a couple of people go, and we've redeployed staff from our banking sector into other areas - there's always jobs out there for accountants, and we have a very strong finance division.

"But a lot of smaller companies out there have staff looking to jump ship, and there's a lot of recruitment industry staff looking to apply to us.

"I certainly believe we will see more companies go under," she says.

Shay Dalton does have a business with six or seven staff - but he says Lincoln plans on expanding, not contracting in the next 12 months.

"I'm looking to hire two more people," he says. There are plenty of positions requiring specialist skills that remain difficult to fill despite the rising number of jobless, he says, and this work is keeping him busy.

"There's more work in the €40k to €75k band, less work in the €80k to €150k.

"Where it has been quietening off has been the banking sector, although banking operations and the accounting sector within industry are steady so far."

Companies are using the recession to "fine-tune" their staff, says Mr Dalton.

"People are looking at 2009 as an opportunity to finesse their team.

"They might have hired people who may not have come up to grade, and they think it's an opportunity to get a better quality of person," says Mr Dalton.

Senior industry figures say employers are calling on experienced recruitment firms to help them sort through the chaff of thousands of applications.

Brightwater's Ms Fleming says that the work is moving in short cycles.

"Take temporary recruitment. It was very quiet in this area at first because the first to go were the contractors. Then companies stopped recruiting permanent staff, and now to fill those gaps we've come back to temporary recruitment."

Niche agencies might find themselves in the wrong niche, says Mr Collins.

He says it may not be a good time to have specialised in construction industry recruitment, for example, or to be known as the best person in the business for finding mortgage specialists for the finance sector.

Industry figures point out that in the recruitment industry, everything rides on confidence: not just the outlook of those doing the hiring, but of the people who are willing to be hired.

"The recruitment industry is led by demand and supply," says Mr Collins.

"If you have an employee looking for a new job who leaves to go somewhere else, and if a person in another job takes that first job, then the job at the second firm has to be filled. You've got a whole bunch of knock-on - from one new job you can end up with four, five or six new positions that have to be filled."

In the boom, workers took gambles because they were optimistic, he says.

"They moved jobs and created vacancies all over the place. Now, that confidence has gone. People aren't moving.

"They're saying, I'll stay where I am no matter how unhappy I am," says Collins.

Says Maireád Fleming: "I'm always a glass half-full person anyway. Probably there will be six more months of the same from a recruitment point of view.

"We'll see firms beginning to hire again at the back end of the fourth quarter, when companies realise that nobody else can possibly go."

When all this is over, the survivors in the recruitment industry will be the ones who "really understand their business", says Mr Dalton.

Deloitte's Mark O'Donnell agrees. "Well-run firms with established relationships, that's the key. Those in it for the quick buck, like many of the firms that popped up over the last three to five years, that maybe don't have the established client base, they'll be in trouble."

"It'll be the quality agencies providing quality service," says Mr Collins.

"If anything, there's even more of a need for quality recruitment firms during difficult times. Employers can't afford to take someone out of action for a week to process CVs. There's a lot of people out there, but they might not be the right people."

Michael McDonnell, director of the Chartered Institute of Personnel and Development, says that he feels more positive about the outlook for the industry after the State's recapitalisation announcement.

"Once banks start functioning again, and we should see some pick-up in the latter part of next year in the big international economies - although it will take longer than that in Ireland because of the enormous difficulties here with public sector debt," he says.