Companies Are Using Fewer Temp Workers, but That Doesn’t Portend a Downturn

livemint.com:

Temporary employment is falling, but that isn’t the bad omen it used to be. The number of temp workers in the U.S. has been trending lower since it hit a peak in March 2022, and it has fallen every month since January.

In the past, declines in temp employment signaled broader weakness in the economy and were considered a bellwether of coming recessions. Typically, businesses staff up with temps to test the resilience of economic growth, then drop those workers first when demand begins to slow, portending wider layoffs as the economy softens. In 2001 and 2007, temp staffing began to fall around a year before recession set in.

But the current temp slowdown is taking place in a strong labor market with overall unemployment at 3.5% in July. The decline is a result of changes in both supply and demand, industry executives and economists say. While the drop in temp employment stems in part from business customers reducing orders for traveling nurses, project managers and other roles, it is also being driven by temp workers’ ability to find permanent jobs.

The August employment report will be released Friday, and economists surveyed by The Wall Street Journal are forecasting job gains of 170,000 and no change to the unemployment rate. The old pattern of viewing falling temp employment as a bellwether of broad-based layoffs no longer holds, said Barry Asin, president of Staffing Industry Analysts, a trade group for the temporary-help sector. “I’ve never seen a moment like this where temp staffing is declining for a sustained period of time and yet GDP is still positive and unemployment is still at record low levels," Asin said.