US temporary-help employment, historically a harbinger of turns in the labor market and the economy, has fallen for six straight months and is signaling a recession ahead. Some industry veterans aren’t buying it.
(Bloomberg) — US temporary-help employment, historically a harbinger of turns in the labor market and the economy, has fallen for six straight months and is signaling a recession ahead. Some industry veterans aren’t buying it.
Rather than presaging a broad economic downturn, executives say the pullback in hiring may instead represent a gradual cooling of an overheated job market and see the chance of a soft landing for the economy.
“I’m hearing more optimism as we navigate through the third quarter,” said Richard Wahlquist, chief executive officer of the American Staffing Association, which represents 1,700 temporary staffing and recruiting agencies in an industry with annual sales of more than $150 billion. “It doesn’t feel like we’re on the precipice of a decline” in the economy.
That would be welcome news for Federal Reserve Chair Jerome Powell. He’s zeroed in on the labor market in his quest to rein in inflation without triggering a recession, arguing that demand for workers needs to be better aligned with supply if the Fed is to achieve its 2% price-growth target.
In a speech at the Fed’s annual Jackson Hole symposium on Aug. 25, Powell welcomed signs that the market was coming into better balance but said that further progress was needed.
He got some favorable news on that front on Aug. 29, when the Labor Department reported that job openings fell to 8.83 million in July, the lowest in more than two years, but still well above levels that prevailed prior to the pandemic.
The Fed chair will get a more up-to-date read on the labor market tomorrow, with the release of the August employment report. Payroll growth is projected to have slowed to 170,000 last month from 187,000 in July, according to the median forecast of economists surveyed by Bloomberg, though August’s tally may have been depressed by the Hollywood actors’ strike.
Temporary jobs have historically been a leading indicator of where the labor market is headed: They’re the first to be added when demand is picking up and the easiest to cut when growth is slackening.
On its face, that’s cause for concern. Outside of the pandemic, the six-month slide in temporary help employment this year is the longest stretch of declines since the 2007-09 financial crisis.
“Our industry is clearly operating as if we’re heading into a recessionary environment,” said Jonas Prising, CEO of global staffing agency ManpowerGroup Inc.
But he sees roughly even odds that a full-fledged economic contraction can be avoided. The decline in hiring and in wage growth has been more gradual than he expected as companies have been inclined to retain workers after the trouble they had staffing up when pandemic shutdowns were lifted.
“As long as employers decide to hold on to their people, we look to have the possibility of a controlled descent and soft landing of the economy,” Prising said.
Tom Gimbel, CEO of Chicago-based employment agency LaSalle Network Inc., said today’s labor market reminds him of 2017 and 2018, when demand for workers was solid but not off the charts.
“I don’t see a full overarching recession,” he said, adding that small and medium-sized businesses have stepped up their hiring even as some of their larger competitors have pulled back.
Signs Unclear
In fact, downturns in temporary work aren’t always a clear indicator of a coming recession, said Stacy McCoy, vice president of research and insights at Duluth, Georgia-based staffing agency EmployBridge. Employment in the sector dipped in 2019 even as unemployment continued to fall. That’s much like today, she said.
The malaise in the staffing industry likely is a sign that workers are commanding full-time jobs instead of taking less stable temp employment, McCoy said. While the temporary-help industry has lost about 205,000 jobs since the industry’s peak in March 2022, most of those people appear to be in permanent, full-time roles, she said.
So, instead of being a sign of coming trouble, the weakness in temp work, “really aligns perfectly with the tightness of the labor market,” McCoy said.
Nela Richardson, chief economist at payroll management company Automatic Data Processing Inc., is among those who think the labor market is returning to some sense of normalcy after the violent swings seen during the pandemic.
“After two years of exceptional gains tied to the recovery, we’re moving toward more sustainable growth in pay and employment as the economic effects of the pandemic recede,” she said.
US companies in August added the fewest jobs in five months as the hiring frenzy in the leisure and hospitality sector abated, according to figures published Wednesday by ADP’s Research Institute in collaboration with Stanford Digital Economy Lab.
A weekly index of staffing employment compiled by the American Staffing Association — and separate from monthly data from the Labor Department — has recently picked up after a traditional summer swoon and a declining trend earlier in the year.
“As I talk to CEOs of staffing companies across most sectors, they are optimistic about the fourth quarter,” ASA chief Wahlquist said. “From what we’re seeing right now, it looks like a soft landing for the economy.”
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