04/29/2010 05:12 am ET Updated Dec 06, 2017

Temporary Hiring: A Different Kind of Signal

A recent Associated Press report, "Temp Hiring No Longer Seen as Sign of Recovery," suggests that one economic rule of thumb no longer applies:

When employers hire temporary staff after a recession, it's long been seen as a sign they'll soon hire permanent workers.

Not these days.

Companies have hired more temps for four straight months. Yet they remain reluctant to make permanent hires because of doubts about the recovery's durability.

Even companies that are boosting production seem inclined to get by with their existing workers, plus temporary staff if necessary.

"I think temporary hiring is less useful a signal than it used to be," says John Silvia, chief economist at Wells Fargo. "Companies aren't testing the waters by turning to temporary firms. They just want part-time workers."

Despite that claim, the article offered little hard evidence, other than statements by economists and anectodal reports from a few workers and employers.

However, an analysis of Bureau of Labor Statistics data on temporary services and total private nonfarm payrolls seems to bear out the fact that past experience may no longer be relevant.


In the wake of the 1990 recession, for example, the year-on-year pace of temporary hiring jumped 23.6 percentage points from its May 1991 lows. That coincided with a 5 percentage point gain for private nonfarm payrolls as a whole.

Following the 2001 recession, the peak-to-trough change in the rate of temporary worker employment was even greater, at 27.8 percent. But the gain was not matched by a similarly robust recovery in the broader labor market, where the change in the pace of private nonfarm payrolls growth was only 2.9 percentage points.

The recent trend is worse still. Since April of last year, the year-on-year rate of temporary staffing employment has climbed 26.5 percentage points (over a much shorter time span than during the previous two recessions, I might add). But again, hiring of permanent staff has not kept pace. Over the past 9 months, the differential has been 2 percentage points.

Of course, it's possible that the rebounds we've seen so far are not finished, and that a growing number of businesses will soon decide that the time is right to beef up their headcounts in anticipation of the long-awaited recovery.

Then again, maybe Main Street's persistent complaint that there's no real light at the end of the tunnel is on the mark. In that case, the tepid recovery we've seen so far may well be the end of it.