MNI INTERVIEW: Flat US Temp Worker Demand Signals Job Cooling
MNI (WASHINGTON) - Hiring by U.S. staffing agencies has plateaued this year as businesses await relief from the Federal Reserve's high interest rates, a likely sign that there will be further cooling in the broader job market, Noah Yosif, chief economist for the American Staffing Association told MNI.
Demand for temporary workers has steadied after a historic surge in the pandemic, but staffing jobs have recovered more slowly in 2024 from its usual July 4th lulls compared to the last two years, Yosif said in an interview.
The temporary staffing sector is seen as a leading indicator of overall employment because firms tend to have a better appetite for workers with more flexible preferences when economic conditions are good, and are more likely to let them go when the economy stumbles.
"The industry has concluded shedding gains, and is now simply waiting until the broader labor market will open again and rebound," he said.
Over "the next jobs report or two, I think we’ll see a larger year-over-year decline in payrolls plus the same level of uptick in unemployment. Those are going to be consequences of the last mile of the tightening cycle," Yosif said. "The question now is how quickly will the Fed's lower rates reduce borrowing costs and convince employers to retain their workers?" (See: MNI INTERVIEW: Job Worries Grow - Conference Board)
CONCENTRATED GAINS
"Folks see the economy right now is not doing as well as it should be, but they're still optimistic about the future" -- in part because the recent deterioration in the labor market has yet to be widely digested, Yosif said. The unemployment rate unexpectedly jumped two-tenths to 4.3% last month, and it's risen a tenth or so every month since May.
Job growth in recent months has been concentrated in three sectors -- government, health care and professional scientific, and technical services -- and that also means sectors that are likely to see weakening were already not hiring a lot, he said.
"The labor market is becoming more exclusive and that will contribute to a faster cadence of cooling," he said. "We’ll see a broader slowdown because those sectors not driving the growth and privy to the headline gains will be slowing due to economic conditions."
Still, the labor market isn't likely to fall into a recession, Yosif said. Unemployment during the longest expansion on record was 4.6% on average and higher still at 5.3% in the dot-com era. Even after the Labor Department revised down monthly job growth figures in the 12 months through March, hiring averaged 173,500 during that period, "which is still a very healthy level overall," he said.
REASONS FOR OPTIMISM
Record low layoffs and job separations rates will also buffer the labor market against worse outcomes, Yosif said.
"Employers and employees have learned a lot since Great Resignation. Employers weren't paying much attention to how well they were retaining their workforce, and that apprehension of experiencing the same sorts of labor shortages as in the Great Resignation will contribute to less layoffs than would be typical of a broader slowdown," he said.
"That provides a case for optimism, that there will be more workers still employed by the time conditions rebound," Yosif said. Academic literature has shown interest-rate sensitive sectors tend to respond to rate cuts in as little as three months, while other sectors might take six months, he added.
Importantly, Fed Chair Jerome Powell has promised the Fed will do everything it can to support a strong labor market. "The Fed has positioned itself to have the flexibility it would need if conditions were to exponentially deteriorate," he said. (See: MNI INTERVIEW: Fed Likely To Make Series of 25bp Cuts- Blinder )