Early Warning Signs of Recession Flash Faintly in U.S. Jobs Databy
Fed's labor market index down for three straight months
Summers sees odds-on bet of recession within three years
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 last 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, chief executive officer 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 percent 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 percent last year. We’re only up about 2 to 3 percent 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 is comprised of 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 percent annualized rate, down from 1.4 percent in the last three months of 2015.
Economists polled by Bloomberg in April lowered their odds of a recession in the next 12 months to 15 percent, from 18 percent in March and 20 percent 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 Plc in New York.
The history of cyclical fluctuations in the U.S. 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.
While the government has reported that the labor force has grown by more than two million workers over the past six months, Funk said he isn’t seeing that in his business, with the number of people he has available to fill jobs down from last year.
Tom Gimbel, chief executive officer of Chicago-based staffing company LaSalle Network, is seeing some people come off the sidelines and resume working. But it’s more a trickle than a torrent, he said, adding, “I think it’s running pretty dry.”
To cope, companies are doing more for existing employees to convince them to stay and becoming less picky in choosing new ones to come on board, said Paul McDonald, a senior executive director at Robert Half International Inc., a Menlo Park, California-based staffing firm.
And they’re raising wages. Robert Half projects that salaries for professionals in such fields as accounting, finance and specialized administration will rise 4.1 percent this year after increasing 3.8 percent in 2015.
Gimbel though said that workers remain restrained in pushing for higher pay packets. "Everybody has gotten a little bit wiser after the Great Recession," he said.
Wage data reported by the government have yet to show much, if any, drift upwards. Average hourly earnings of private-sector employees rose 2.3 percent in March from a year earlier, in line with increases seen throughout the expansion.
Carl Riccadona, chief U.S. economist for Bloomberg Intelligence, said that’s a sign that there’s still slack left in the labor market. He said the market has "decent momentum" though he adds that the strong picture painted by payrolls has been tarnished by other indicators showing less vibrancy.
Funk, for his part, is wary. "We’re watching it real closely," he said.