The gloomy August payroll jobs report —93,000 more jobs lost, manufacturing continues its agonizing slide—hid one modest bright spot of news. The temporary employment sector added 6,800 jobs, and the economy has added nearly 100,000 temps since April.
At first blush, the creation of a few temporary jobs—whether for loading-dock hands or data-entry specialists—would seem to be a pretty desperate straw for economic optimists to grasp. After all, what unemployed people want is full-time, benefit-paying, permanent jobs. And the yardstick by which we tend to measure the success of an economy is its ability to generate just such jobs.
But it's important to keep an eye on temporary jobs. The "staffing" industry likes to promote temp work as "a bridge to permanent employment." It can also be a harbinger of spring. Coming out of slack times, companies are at first reluctant to add to their payrolls. So when they experience a pickup in demand, their initial instinct is to call Kelly Services or Manpower—not to place a help-wanted ad. Conversely, when the economy sours, such contingent workers are frequently the first to go. "Temporary employment is generally a leading indicator for employment," says Steve Berchem, vice president of the American Staffing Association. Permanent jobs typically follow three to nine months later.
But this is an atypical recovery that has stubbornly refused to adhere to the economic script. Temporary jobs may not be playing their accustomed role.
The Bureau of Labor Statistics found that temporary help was a leading indicator of the early 1990s recovery. Total jobs bottomed out in May 1991 and then began to grow slowly. The temporary employment sector added 800 jobs in 1991 while total non-farm payroll jobs fell by 737,000. In 1992, the number of temporary jobs rose 12.6 percent—or 880,000—and total payrolls grew about 1 percent, or 1.1 million.
During the 1990s expansion, regular payroll jobs grew at a remarkable rate of 2 percent per year. Between May 1991 and February 2001, payrolls rose from 108.2 million to 132.56 million—an increase of 22.5 percent. But temporary jobs soared at a rate nearly five times faster, jumping 127 percent, from 1.11 million to 2.52 million.
Temporary employment can grow even more rapidly in boom times than it does in doom times. By the end of the 1990s, everyone who wanted a full-time job pretty much had one. And employers desperate for workers turned to people who either would have been unemployable or were uninterested in permanent employment.
But temporary employment is highly volatile. It topped out in spring 2000 and then crashed dramatically. Between April 2000 and April 2003, the number of temporary jobs fell from 2.68 million to 2.13 million. Twenty percent of temp jobs disappeared, compared to only 2 percent of payroll jobs.
What's odd and troubling about the current recovery is that temporary payrolls are growing so slowly—6,800 a month is not enough. When the economy is growing at a steady clip, as it has been for awhile, so, too, should temporary employment. "But this current upswing is less consistent with the past recoveries," says the American Staffing Association's Berchem. "The economy is growing faster than temporary employment, while overall employment has declined." (Click here for Berchem's detailed analysis of the temporary staffing market and the economy.)
What gives? It turns out the same forces that are tamping down payroll growth—off-shore outsourcing, foreign competition, massive productivity gains, and general skittishness—also are restraining temporary employment. What's more, temporary employment is concentrated in manufacturing and information technology, two sectors that have not really recovered from the battering they took two years ago.
The September payroll jobs report comes out Friday, and economists, stock traders, and political consultants should look past the headline numbers at the temp figures. If real payroll jobs are going to return any time soon, the economy had better starting adding tens of thousands of temps every month.