The Silver Lining in the Employment Report

 

There’s much reason to feel pretty discouraged about the jobs and employment reports that came out on Thursday and Friday this week.

To summarize

New jobless claims were much higher than expected – 472 thousand. The consensus was 450 thousand.

In May, the US economy shed 125,000 jobs, driven mainly by the decline in temporary census workers. Private payrolls actually rose 83,000, which is up from the 33,000 of April, but still not enough to make a significant dent in the dismal employment situation. The consensus had been 105,000. Unemployment overall ticked down .2%, to 9.5%, but don’t get too excited. The decrease was due to a drop in the size of the labor force, not the number of unemployed (remember, the unemployment rate is the number of unemployed dividied by the labor force)

SO overall, it’s a mixed bag. The jobs report was really rough, but the employment report was not awful, although it by no means offered much encouragement.

Something I found interesting though, and might prove to be a silver lining to the whole thing, is the figure for “temporary help services,” or temp workers. The WSJ reports:

Within professional and business services, employment continued to increase in temporary help services, which added 21,000 jobs.

Temporary help services is an interesting measure of employment. There is some conjecture that it can actually be a leading indicator of labor demand. Temporary help is much easier to hire or fire than permanent employees, and so that labor market is much more responsive to economic conditions. Employers may also want to hire temporary help before they are entirely certain that economic conditions are ripe for hiring, and will then make those temporary jobs permanent when they are affirmed. What we see going on in the temporary help services market, then, can be a good indication of what will happen with the labor force in the near future. For a graphical representation, let’s look at what went on during the recession in 2001. (Click to enlarge)

Temporary services (left axis) vs. Total nonfarm employment (right axis)

A pattern is discernible. It seems as if temporary help services tracks unemployment, albeit a little early. The recession of 2001 lasted from March to November. As you can see, after November, there is an uptick in temporary help services, which leads a modest leveling off in the labor market. Temporary hiring is down again at the end of 2002, leading a decline in total employment. Temporary hiring spikes in 2003, followed by an increase in total employment. You get the picture.

The moral of the story

The increase in 21,000 temporary help services jobs might be the best indicator we have of what to expect next month – which is to say modest growth. But still growth. If temporary hiring is a leading indicator of labor demand, then we may yet continue to see some progress in the labor market.

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