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What is Temp Work Saying About GDP and NFP?

Wednesday, December 05, 2007 | 06:17 AM

With November's Non Farm Payroll coming out Friday, we thought a few previews this week might be instructive.

One of the leading indicators of job creation are the hirings at various temp services. Companies unsure of future expansion use temp workers, and then shift to full time permanent employees as things firm up. As the 10 year monthly chart nearby shows, Temp Hiring is quite cyclical.

Temp jobs have been declining throughout the year, except for October, when they rose by 20,000, or +0.79%, to 2.58 million. Whether this is the start of a major turn in employment, or merely a statistical blip is unknown now. Note that on a year-over-year basis, October 2007 data represented a decrease of -1.59%.

Let's see what the leadership of one of the big temp firms has to say about this, via WSJ's Real Time Economics:

"Carl Camden, president and CEO of temp giant Kelly Services Inc., calls the job market “perplexing.” The economy growing at 3.8% in the second quarter and 4.9% in the third quarter generally should be associated with monthly gains of 150,000 to 250,000 jobs, Mr. Camden said in an interview with the Journal. Instead, GDP and temporary employment growth — once strongly correlated — seem to have decoupled." (emphasis added)

Unless you can show me another ~5% GDP quarter where S&P 500 profits were down 8.5%, I think the answer to this conundrum is obvious: There has been no "decoupling." What I strongly suspect occurred is that the 4.9% GDP is a fantasy, a statistical sleight of hand that is half inventory build, and half wildly understated inflation.

Of course, I could be wildly wrong, inflation may be tame, GDP robust, and the employment picture just fine (your mileage may vary). But I have a sneaking suspicion that is not the case.

Here's another chart, Employment Trends & Temporary Help Data Report, via Bruce Steinberg:

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Courtesy of Bruce Steinberg