One of the strongest signs yet that the U.S. jobs picture is brightening is the persistent rise in temporary employment.
This leading indicator of future U.S. employment growth is suggesting stronger hiring ahead, and staffing industry executives say they are seeing greater demand for personnel than is reflected in official figures.
There is enough evidence now to support the contention that a modest labor recovery is taking root, industry executives say. These include rising conversion rates of temporary into permanent staff, and more so-called light industrial jobs in logistics and manufacturing operations, which typically precede wider turns in the economic cycle.
Strength in those areas appears partly at odds with the latest payroll numbers from the government, which showed a decline in manufacturing jobs, staffing industry insiders say.
Although U.S. payrolls fell for the third straight month, August's decline of 54,000 jobs outside the farm sector was much smaller than expected, and declines in the previous two months were smaller than initial numbers showed. The unemployment rate edged up to 9.6 percent, the Bureau of Labor Statistics said Friday.
Adecco SA has seen 50 percent year-over-year growth in demand for light industrial workers, a category that includes jobs like drivers, distribution workers and assembly line jobs. Such numbers accelerated from July to August, said Tig Gilliam, who heads North American operations for Swiss-based Adecco.
"The temp business is still growing and continues to be a leading indicator," Gilliam said. "I wouldn't call it on fire, but the temp market is good."
He added he was surprised by the weakness in manufacturing shown in the U.S. government figures, which was at odds with Adecco's internal data.
"We're on an even keel, which is a slower rate of recovery than we saw earlier in the year, but we're still moving forward," Gilliam said.
Growth in temp jobs
Temporary help services added 17,000 jobs in August, and the sector's year-over-year increase of 22 percent was the biggest gain since 1991, said BMO Capital Markets. The percentage of temporary workers in the labor force, a crucial metric, was at 1.62 percent, well above the low of 1.33 percent in September 2009.
"Staffing stocks should react favorably to this news," BMO analyst Jeff Silber said in a note to clients.
Next week, Manpower will publish its quarterly hiring outlook for the U.S. and 35 other countries.
Growth in temporary payrolls is encouraging news for global staffing companies like Adecco and Manpower, which generate large portions of their sales and profits from placing contract workers. Temp jobs are considered a leading indicator because cautious employers often have a try-before-you-buy attitude toward ramping up staff.
Many uncertainties remain, including the result of U.S. elections in November, the impact of Europe's sovereign debt crisis and the health of U.S. consumers amid renewed weakness in housing. An apparent recovery could yet die out.
However recent signs, including strong manufacturing and same-store sales, have eased concerns about a double-dip recession and allowed stock prices to rebound.
Turning temps into hires
Randstad, another huge global staffing company that generates more than $1 billion a year in revenue from U.S. general staffing, has seen a rise in conversion rates, the rate at which a temporary worker turns into a permanent employee.
That is especially visible among white-collar jobs, said Linda Galipeau, president of Randstad's U.S. general staffing. She added that employees who now have jobs are starting to look around for alternatives, suggesting either confidence in their prospects or frustration with their current employers.
Recent conversations with clients have shown a positive, if cautious, attitude toward hiring, with only housing industry clients showing a negative outlook, Galipeau said.
"They are still feeling the crunch, but apart from that, people feel good about the business trends," she said. "Clients are talking about revisiting the level of contingent labor that they've been comfortable with in the past and just inching that up a little bit."
As a result, the temp penetration rate is likely to rise more rapidly in coming months, possibly to a record high, unless employers suddenly face an exodus of workers and become nervous about excessive turnover.