Early Warning Signs of Recession Flash Faintly in US Jobs Data
As the economy again started off the year on a sour note, the glass-half-full crowd pointed to the strength of the U.S. jobs market as a reason not to worry. As long as payrolls are racking up monthly gains of 200,000 or more, the economy remains in fine fettle, or so the optimists would have it.
Take a peek below the headline jobs data, however, and there are signs that the labor market is losing some momentum.
Temporary-help employment, which peaked prior to the past two recessions, is showing signs of topping out. And a broad labor-market index constructed by Federal Reserve economists — and monitored by Chair Janet Yellen — has fallen for three straight months, the first time that’s happened since 2009.
“I am a little concerned,” said 75-year-old Bob Funk, CEO of Express Employment Professionals, which provides temporary workers to companies. “Our industry is always on the front end of a recession,” as provisional workers are the first to be let go on signs of economic weakness.
Temporary-help employment fell in two of the past three months and is down 1.8% so far this year — even while total payrolls are higher. It’s leveling off,” said Funk, who co-founded Oklahoma City-based Express Employment Professionals in 1983. “We ended up 10% last year. We’re only up about 2% to 3% so far this year.”
In the run-up to the 2001 recession, provisional employment peaked 11 months before the downturn began. The lag before the Great Recession of 2007 to 2009 was 16 months.
The picture is similar for the labor market conditions index, which comprises 19 indicators, including temporary help. The six-month moving average of changes in the index turned negative nine months before the 2001 economic drop-off and five months before the more recent recession.
On that basis, broad-based declines among its components turned the average just barely negative last month, suggesting labor conditions may be plateauing rather than deteriorating in a way that would presage a recession.
Few forecasters are saying that an economic downturn is imminent, in spite of a projected further slowdown in the first quarter. Economists at St. Louis-based Macroeconomic Advisers put growth from January through March at a 0.9% annualized rate, down from 1.4% in the last three months of 2015.
Economists polled by Bloomberg News in April lowered their odds of a recession in the next 12 months to 15%, from 18% in March and 20% in February, according to the median calculation.
And even some of Funk’s fellow staffing specialists are voicing confidence in the outlook.
“Generally speaking, we think the labor market is still fairly robust,” said Kip Wright, senior vice president of Manpower North America, part of ManpowerGroup Inc. “We’ve certainly seen certain sectors that had some weaknesses, like manufacturing, but they’ve bottomed out to some extent and are starting to stabilize.”
In perhaps a sign of strength, companies seem more willing to take on permanent workers rather than hiring temporary help. “They’re gaining more confidence,” Wright said. “Our full-time hiring business is growing at significant double-digit numbers.”
That said, some staffing-company executives describe labor-market conditions that are more reminiscent of an expansion that is closer to its end than its beginning.
They say it’s hard to find workers to meet the needs of their clients and report that wages are starting to increase as a result — developments that typically occur in the latter half of an expansion as the economy begins to reach its limits.
“We’re probably two-thirds of the way through the cycle” that began in June 2009, said Michael Gapen, chief U.S. economist at Barclays in New York.
The history of cyclical fluctuations in the United States suggests that the “odds are significantly better than 50-50 that we will have a recession within the next three years,” former Treasury Secretary Lawrence Summers told a group of economists in Cambridge, Massachusetts, on April 15.
