The temp job market is setting off economic alarms ⚠️
But some doubt its reliability as a leading indicator 📉
While the overall U.S. labor market remains robust, jobs tied to temporary labor have been evaporating for five consecutive months.
This has some economists concerned about the labor market as temp jobs are considered a leading indicator (i.e., their moves portend changes in the economy). Even the White House Council of Economic Advisers has flagged the deterioration.
“This series was a very good leading indicator ahead of the 2001 and 2007-2009 recessions and suggests that tighter policy is having an impact underneath the surface of the labor market,” Tim Duy, chief economist at SGH Macro, wrote on Monday. “For example, temporary employment effectively peaked in March 2007, but total employment did not peak until January 2008.”
When demand cools and businesses need to make cuts, they tend to cut temp workers before letting go of full-time employees. In protracted economic downturns, these cuts are followed by larger-scale layoffs.
Employment in temporary help services fell by 35,000 in December. It’s down by 111,000 since July.
“This remains something to keep an eye on,” Duy wrote. “[If] the same pattern holds true in this cycle, and assuming temporary help employment continues to slide, job growth will turn negative by the end of the second quarter of 2023.”
Is this time different?
But not all economists are convinced changes in temp jobs are as reliable an indicator as they once were.