The hidden indicator pointing to bad news for jobs
By Neil Irwin
Monday, October 22, 2012
Temps are telling us something, and it isn’t good.
Temporary employment is one of the better predictors of what the job market will do in the months ahead. And recent trends point toward even slower job creation in the final months of the year than the sluggish hiring that has been evident throughout 2012.
Temp employment counts for less than 2 percent of jobs, but it makes intuitive sense that it would be a good indicator of what is to come in the job market overall. When times are rough, a company will naturally cut temporary workers before laying off permanent employees. And when business is improving, companies may bring on temps to help fulfill that demand while waiting to see if that uptick is sustained before hiring permanent workers.
The intuition matches the data. Since 1990, the change in temporary employment over a three-month period has a 77 percent correlation with overall job growth in the ensuing three months (for stats geeks, the regression has an r-squared of 0.6, which for non-stats geeks is pretty good for this sort of thing).
The bad news is that temporary-help employment has flattened out in the past two months, falling by 2,000 jobs in September and essentially unchanged in August. In the first six months of the year, by contrast, the sector added an average of 21,000 jobs a month.
If the historical relationship holds up, the weak growth in the third quarter would predict that overall job growth in the final three months of 2012 will be only 72,000 jobs a month, which would be not even enough to keep up with growth in the labor force.
Two of the biggest companies in the sector reported third-quarter earnings this week, and their results shed some light on what is going on.
At Manpower, third-quarter revenue in the United States was down 8.2 percent from a year earlier, and operating profits were down 23.7 percent, the company said Friday. Robert Half International reported Thursday that its U.S. staffing revenue was up 10.4 percent in the third quarter over the corresponding period in 2011, but it was the second-straight quarter in which that growth rate had declined.
Demand isn’t collapsing, and executives of both firms, in separate conference calls with analysts, described the European market as facing deeper challenges than the United States.
“If we’re talking U.S. versus non-U.S., it’s totally ‘A Tale of Two Cities’ there,” M. Keith Waddell, chief financial officer of Robert Half International, said in its conference call Thursday.
But that doesn’t mean things are good, either. The picture is not nearly so dark as it was four years ago, but neither are companies eager to bring on new workers.
“This is extremely different from what we saw in 2008 and 2009, when we saw dramatic drops in revenue month after month and sometimes week after week. We do not see that happening,” Jeff Joerres, chief executive of Manpower, said in a conference call Friday.
“We are not looking at a catapult out of this downturn like we have in the past,” Joerres said. “Rather, we are looking at a flattish near-term.”
Perhaps most telling is that Manpower executives resisted calls from analysts to offer projections for the early months of 2013, saying things were too unpredictable.
“We’re in an environment where things are changing very quickly,” said Mike Van Handel, chief financial officer of Manpower. “Rather than make any comment, I think we’ll just see how the next couple of months play out.”
The trends at Robert Half and Manpower fit with a broader theme in the recent data. While consumers seem to be downright buoyant — retail sales, consumer confidence and a number of measures of the housing market are all up recently — companies are in rougher shape.
Manpower executives de-emphasized the looming “fiscal cliff” as a cause of the weakness, but said businesses are concerned with weakness in Europe, weaker economic data from China and other sources of uncertainty.
“What we’re talking about is not gloom and doom but a longer period of standstill,” said Joerres, in what, if the past is a guide, could be an all-too-apt prediction of what will happen to the overall job market in the months ahead.