Economists the past year may have stolen a page from Charles Dickens with their claims that these are the best of times, also the worst of times.
Optimists and pessimists, bulls and bears -- each camp discerns something in the release of monthly economic statistics that supports its predictions.
The past month was no different. On the positive side, the degree of inventory liquidation suggested an economic pick-up to some forecasters. The Institute for Supply Management, formerly the National Association of Purchasing Management, production index for December rose above 50 (the threshold for growth), with new orders touching an impressive 54.9 -- suggesting that manufacturing may be about to rebound.
Before anyone could start celebrating, Ford Motor Co announced it was cutting 35,000 jobs and Federal Reserve Chairman Alan Greenspan saw "significant risks" to an economic recovery.
What to believe? While I would classify myself an eternal optimist, one economic signal that has proven itself in the past -- hiring of temporary workers -- is anything but positive.
While economists look at payroll employment as a lagging indicator -- figures that confirm a trend -- movement in hiring or firing of temporary workers is regarded as a strong leading indicator, figures that tend to provide accurate forecasts.
What temps tell
There's a logical reason to believe what the temporary hiring numbers tell us about the economy. Companies that merely sense the economy may pick up are understandably reluctant to hire staff on a permanent basis. So they turn to temporary help to handle any increase in demand. Companies will also shed temporary workers before laying off permanent staffers when they foresee a slowdown.
Charts of periods in which we entered and left recent recessions back up an intuitive impression that movement in temporary workers is likely to be a better predictor of the economy's direction than overall unemployment and job growth numbers.
Dan Solomon, an economist at the Federal Reserve Bank of Chicago, published a study in 1995 suggesting that numbers covering temporary workers were generally a quarter ahead of overall employment figures in predicting where the economy was headed.
My own calculations confirm that, in the previous two recessions, temporary unemployment trends gave a solid clue to when the recession was coming to an end. In the nine months following the official end of the 1991 recession, overall jobs continued to fall by 209,000, yet temporary employees grew by 63,000.
Similarly, while the economy lost 528,000 jobs in the last three months of the 1982 recession, temporary jobs grew by 1,000.
Unlike the 1990-1991 recession where movement in temporary jobs offered few clues that a recession was coming, temp hiring proved a star forecaster of the recession from which we are now struggling to emerge.
Many forecasters (and ex-policy makers) would have looked a lot smarter -- and a lot of investors would be a lot richer -- had they all looked at temporary workers as their leading leading indicator.
Gloomy numbers
In the six months prior to the official onset of our latest recession last March, overall employment figures seemed to signal continued though slower economic expansion: the US economy grew a solid 758,000 jobs from September 2000 through last February.
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