WASHINGTON — A recent decline in the number of temporary workers at U.S. businesses could be a signal that employment, and the U.S. economy as a whole, are softening.
Over the past two months, temporary employment has dropped by 8,000 workers, according to the government's main job gauge, and economists say it could be an early signal of falling confidence at businesses.
When confidence is on an upswing, companies often hire temporary help before committing to more-expensive permanent hires. When confidence falters, temporary workers are also the first to get the boot.
The number of temps in the workforce began to drop off nearly a year before the 2001 recession and slipped again in mid-2002 during a period of softness in the labor market.
The latest job report from the Labor Department issued a week ago showed the number of temporary workers employed in May fell by 2,800. The department also revised downward the temp count for March and April.
Since December, temporary employment has tumbled by about 31,000 workers, the largest sustained decline since 2003.
"The first adjustment will come from temporary workers if there's a period of softness," said Stefane Marion, assistant chief economist at Montreal-based National Bank Financial Group. "The more we look at it, the more (these recent numbers) suggest a weaker labor market in the second half of the year."
The government data show the number of temps in the U.S. workplace peaked in April 2000 at 2.68 million. Employers then shed half a million temporary workers over the next 15 months as the economy sank into recession.
Temporary employment rebounded in early 2002, but fell again between July 2002 and April 2003. But until this year, there had been only six scattered months in which temporary employment declined.
Then in January, more than 20,000 temps lost their jobs, on net, and the temporary market has been sliding ever since.
"Temporary help is easier to hire and let go," said Goldman Sachs economist Andrew Tilton. "You begin to see shifts there before you see shifts in the overall market."
Not all experts, however, view the weakness in temporary employment as a sign of looming labor market weakness.
"We are not at the gates of a severe slowdown," said Oscar Gonzalez, economist at MSC Global Investment Management.
Two large temporary staffing service firms, Manpower and Adecco International, say their U.S. business has not declined.
"We're pretty busy right now," said Adecco Senior Vice President Joanie Ruge.
But she said that the companies she deals with have become more choosy about who they will hire. "Companies are trying to do more with fewer people," she said.
Jeff Joerres, president and chief executive of Manpower, also said companies had recently grown pickier and played down the recent declines in temporary employment.
He argued this cycle was different from those in the past. "We look at the May (employment) numbers, but that's not really what our clients are telling us," he said.
While there have been numerous isolated months in which temporary employment has fallen since the Labor Department began tracking the numbers in 1996, there have been only three stretches in which it dropped in consecutive months.
The first, from May 2000 through January 2002, heralded and coincided with the 2001 recession.
The second occurred from July 2002 through April 2003, as the U.S. economy struggled through a jobless recovery.
"We thought we were in a recovery but that wasn't quite the case," said Joerres, who admitted that his business suffered a "hiccup" at that time.
The third period is the latest, beginning in January.
Hannah Kain, chief executive of ALOM Technologies, a company that relies heavily on temporary workers, attributes the decline to globalization.
"Temporary workers are usually called in to handle spikes," she said. But overseas firms are increasingly handling bursts of temporary demand from the high-tech Silicon Valley companies that ALOM counts as clients.
Although experts differ on what lies behind the recent drop in temporary employment, many economists say the trend isn't positive for the labor market.
"If this trend continues, it won't be viewed very friendly for the employment situation," said Jason Schenker, an economist at Wachovia.
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