Fed sees soft landing as silver lining of temp jobs decline
Jan. 27, 2023 Updated Fri., Jan. 27, 2023 at 7:49 p.m.
The recent decline in temporary jobs – often a harbinger of recession – is actually raising hopes among Federal Reserve policymakers that their bid for a soft landing is working.
The number of U.S. temp workers fell for the fifth straight month in December from a record high in July.
The drop is being viewed as an indication that the Fed is making progress in its bid to ease a taut jobs market just enough to head off inflationary wage increases without triggering widespread layoffs.
The risk, however, is that the 3.5% decrease in temp jobs since July – when those payrolls hit a record in data back to 1990 – portends not the cool-down of the labor market that Fed officials are hoping for, but rather a coming collapse.
“Is this a renormalization or is this the start of a real labor market recession?” asked ZipRecruiter Chief Economist Julia Pollak. “It’s just very hard to say with certainty.”
Temp jobs have historically been a leading indicator of where the labor market is headed: They’re the first to be added when demand is picking up and the easiest to cut when growth is slackening.
Fed Vice Chair Lael Brainard and Governor Christopher Waller both cited the recent fall last week in making the case that the central bank could corral elevated inflation without throwing millions of Americans out of work.
They pointed to the drop as evidence that demand for workers is easing, along with a retreat in job openings and moderation in hiring.
“Recent declines in average weekly hours, temporary-help services and monthly payrolls growth suggest tentative signs that labor demand is cooling,” Brainard said at an event at the University of Chicago Booth School of Business.
Policymakers will get January figures for those data next week, but not until after they’re widely expected to further downshift the pace of interest-rate hikes to a quarter-percentage point at the conclusion of their two-day meeting on Feb. 1.
Before officials make a decision, they’ll also see the fourth-quarter employment cost index, a broad gauge of wages and benefits, as well as December job vacancies.
Staffing company executives say they don’t see the recent slide in temp jobs as a sign of an impending downturn in the economy.
Rather, they view it as the resumption of more typical hiring patterns after a surge in payrolls coming out of the pandemic.
“It’s a return to normal,” said Tom Gimbel, chief executive officer of Chicago-based employment agency LaSalle Network.
Larger companies which over-hired early in the pandemic, especially technology giants like Amazon.com, are now laying off staff.
That’s making room for smaller firms that had difficulty competing with their bigger rivals for talent to scoop up workers.
And from the Fed’s point of view, there’s another positive: it’s leading to a moderation in wage growth, according to the staffing professionals.
Smaller firms with narrower profit margins just don’t have the wherewithal to grant big pay hikes.
“We’re not seeing wage increases at the pace they were,” said Jim McCoy, senior vice president of ManpowerGroup. “It’s getting back to pre-pandemic levels,” with compensation increases more in line with productivity growth.
While wage growth has generally been moderating, not all companies are pulling back on pay.
Walmart, the largest private-sector employer in the U.S., is raising its starting wage 17% after a surge in inflation last year and tough competition for staff.
Demand for workers remains strong, though it’s showing signs of slowing.
A net 29% of companies expect to add to their payrolls in the first quarter, down from 41% a year ago, according to ManpowerGroup’s latest survey of more than 6,000 U.S. employers.
Data compiled by the American Staffing Association from its member companies show a similar resilience.
Temporary and contract staffing employment picked up in the opening weeks of 2023 after the usual holiday lull.
“Our members continue to have more open orders than they can fill in most sectors, though there’s been some loosening,” said Richard Wahlquist, who heads the association of firms that provide temporary help and other staffing services.
His members also report that their clients are retaining more temporary workers as permanent employees and are working harder to keep the staff they have as millions of Americans have been quitting their jobs in recent months.
Less turnover would be an ideal outcome for the Fed and the economy.
If fewer workers are leaving, companies won’t need to hire as much, nor try to lure candidates with such lucrative pay.
That can keep a lid on inflation overall, so officials may not need to keep rates high for as long as forecast.
“The Fed may just get lucky,” ZipRecruiter’s Pollak said.
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