Who’s Hiring: Why the Job Market Slowdown Might Not be Temporary

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The May jobs report was dismal to say the least. Yes, the economy added jobs. But there are 14 million people out of work in this country. And that number only dropped by 54,000 last month. The number reinforced how much the economy, which looked to be in recovery mode, has recently slowed.

Some industries are doing better than others. One important thing to remember is that the 54,000 figure is a net total of the number of people who were fired and hired in the month. So there were actually far more than 54,000 people who got jobs in May. But there were also some people who joined the ranks of the unemployed as well. What’s more, all of the jobs numbers are seasonally adjusted. So that can also cause some distortion.

One of the bright spots, surprisingly, was in the housing sector. Residential contractors added a seasonally adjusted 14,100 workers, which I guess says that even though people aren’t buying new houses, they are spending more to fix up the ones they have. We’ve long known that our aging population should add a boost to the workforce. And that’s probably going to happen in good times and bad. And that’s what was reflected in May as well. The healthcare services sector added 27,000 jobs. Restaurants added workers as well, up nearly 14,000 employees. And that normally would be a good sign. People spend more money at restaurants when they are feeling flush. But McDonald’s, which said it was going to hire 50,000 workers in April, many of which were not counted until May, was probably a large part of that increase. So I’m not sure how good an indicator that was.
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Unfortunately, the best indicator of where the jobs market is headed comes from an industry that did not add jobs in May. Temporary employment services fell on a seasonally adjusted basis by 2,000 jobs. Temp hiring has been slowing for a number of months now. Back in January when the drop-off began I said that could end up being a bad sign for jobs recovery:

Companies added just 16,000 temp positions in the last month of the year. How bad a sign is that? That depends on where you think we are in the economic recovery. Full-time jobs are better for the economy than temp hires. It shows more confidence that companies believe an increase in business will continue. Also if someone has a regular pay check, they are more likely to spend more freely than if all they have is a temp job. And more spending is something we need right now. So you could argue that the fact that temp jobs made up a smaller portion of the overall jump in jobs in December is a good thing.

The question is whether this happening too early. Heidi Shierholz of the liberal leaning Economic Policy Institute says she thinks it is. She says that the large portion of job growth coming from temp jobs was a problem, especially if it continued. But with 14.5 million people still out of work, any job is a bonus for the economy. And we are a long way from where temp hiring was when the economy was strong in early 2008. What’s more, temp jobs can often lead to permanent jobs. So fewer temp jobs could mean fewer permanent jobs next month. Shierholz says in a sustained job recovery, temp jobs will continue to grow, but permanent jobs will grow faster. We had that later and not the former. And that could be the most important sign that today’s large drop in the unemployment rate is nothing to cheer about.

Economists have pointed to a number of reasons as to why the drop off in hiring might be temporary — tornadoes, the Japan earthquake, high gas prices. But the continued drop-off in temp hiring paints a different picture. The lack of temp hiring is a sign that the slowdown in the job market is more permanent than many think.
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