Posted 07/09/2012 08:14 AM ET
Often a pickup in temp jobs is a positive sign that employers are cautiously optimistic. When business initially improves, companies may add short-term staff. Then, when firms are confident that the stronger demand will continue, those short-term positions become permanent. (Temp jobs began to pick up in late 2009, months before the start of overall hiring in early 2010.)
But the recent strength in temp jobs appears to reflect growing pessimism, not optimism. Overall payroll gains have slowed sharply. Permanent jobs (including part-time) rose by just 54,800 in June. April's 47,300 new permanent jobs were the fewest in years.
And business demand isn't improving. The Institute for Supply Management's June manufacturing activity index signaled contraction for the first time in three years. The new orders gauge suffered its worst monthly drop since October 2001, just after the 9-11 attacks. It's now at its lowest level since April 2009. (In May 2009, new orders turned higher and quickly signaled robust demand, followed by backlogs and supplier delivery measures. Those positive readings preceded the increase in temp jobs later that year.)
With future production now likely to decline, companies have responded rationally by slashing hiring and relying more on temps to handle current needs. Firms are relying on temp workers for longer and converting fewer into permanent hires, staffing firms report.
U.S. recession risks clearly have stepped up in recent months. GDP grew at a sluggish 1.9% annual rate in Q1 and likely fared worse in Q2. In addition to the jobs and factory reports, retail sales have been falling and consumer confidence slumping. Housing activity and auto sales have been bright spots. But it's not clear how far and fast they will continue to rise on pent-up demand, especially with jobs being so weak.
Even with massive fiscal stimulus and unprecedented Federal Reserve monetary efforts, this has been the weakest recovery in 60 years. Sub-2% GDP growth is dangerously close to stall speed. The U.S. is in the recession red zone, as AEI economics blogger Jim Pethokoukis has said.
Looking ahead, the U.S. faces a year-end "fiscal cliff" of massive tax hikes and significant spending curbs that could drive the country back into recession. As that deadline looms closer, it will have a bigger and bigger chilling effect on companies' hiring and investment decisions. The betting is that a lame-duck Congress will kick the can for a few more months, hardly inspiring long-term confidence.
Meanwhile, Europe's debt crisis continues to intensify, with the risks ranging from (best-case) recession to a full-blown eurozone crackup. Growth is slowing in China, India and Brazil. Those overseas woes are starting to affect the U.S. economy: ISM's manufacturing and nonmanufacturing surveys both reported declining export orders in June, with a sharp deterioration in the past two months.
All of this adds to the ongoing uncertainty from the Obama administration's sweeping regulatory efforts. ObamaCare rules already are 13,000 pages and counting. The Federal Reserve, SEC and others have just scratched the surface of writing regulations for the Dodd-Frank Act. And the EPA has embarked on a slew of environmental actions. The current regulatory climate combines the certainty of heavier burdens on business with the uncertainty of the actual scope and size of those costs. ObamaCare's employer health care mandate in particular may discourage firms from adding permanent staff.
Small wonder that firms are reluctant to make long-term plans, and have relied more and more on contingent workers throughout the recovery.
Since June 2009, temporary jobs have surged by 44.5% vs. just 2% for nonfarm payrolls overall. By their nature temp jobs are volatile, and they crashed during the recession. But while permanent jobs are still down by about 4.9 million jobs from their January 2008 peak, temp positions are about 15,000 shy of topping their January 2008 levels.
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