Tue, Jan 22, 2002 page19

• Climb in temp jobs not a good sign for the US

  • By Gene Sperling / BLOOMBERG
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  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.

  Yet in the same six months, temporary jobs fell 167,000 overall, and the trend was negative five of six months.

  This isn't to suggest that significant temporary job loss always points to recession. Treasury Secretary Paul O'Neill and the National Bureau of Economic Research recognize that we will never know for sure whether the economy would have fallen into recession if not for Sept. 11. Those looking to temporary employment as a crystal ball should note that manufacturing sank much sooner in the latest recession than the rest of the economy.

  While there is a perception that the rise of temporary help over the last decade reflects a surge in service-sector jobs, Princeton economics professor Alan Krueger notes that a large portion of temporary hires -- some say more than a third -- is in manufacturing. An early decline in manufacturing may therefore have triggered an early loss of temporary jobs prior to the recession setting in.

  Recent economic history would thus suggest that, were the economy truly on the road to recovery, temporary hires would be picking up. In the last three months, however, the hiring of temporary workers fell by a whopping 247,000 jobs, including 55,000 in December.

  To be sure, this is only one sign among many mixed signals.

  Still, this instinctive optimist will find it easier to maintain that outlook if the January employment report -- to be released Feb. 1 -- shows us some good news on temporary employees.

  Gene Sperling, who was former US president Bill Clinton's top economic adviser, is a columnist for Bloomberg News. The opinions expressed are his own.
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