Temp labor market warns of approaching recession

Companies Cut Temp Workers in Warning Sign for Labor Market

Employment through staffing firms has fallen for five straight months; similar pullbacks have preceded recent recessions

By Sarah Chaney Cambon, The Wall Street Journal, Jan. 24, 2023

Employers are shedding temporary workers at a fast rate, a sign that broader job losses could be on the horizon. … Many economists view the sector as an early indicator of future labor-market shifts.

Temporary employment declined before some recent recessions and during economic slowdowns. Temporary workers, typically employed through staffing agencies, are easy for companies to bring on board — and let go. …

“What we probably will have in the economy in the coming months is continued growth in consumer services and a decline in the rest of the economy,” said Gad Levanon, chief economist at the Burning Glass Institute…[end quote]

The service sector is about 80% of U.S. employment. If demand grows, employers may hire some of their temp workers as permanent workers. That would be good for the Macro economy but it’s hard to say how much of the decline in temps is due to hiring as full-time.

The Conference Board Leading Economic Index® (LEI)for the U.S. decreased by 1.0 percent in December 2022 to 110.5 (2016=100), following a decline of 1.1 percent in November. The LEI is now down 4.2 percent over the six-month period between June and December 2022 — a much steeper rate of decline than its 1.9 percent contraction over the previous six-month period (December 2021–June 2022).

The Coincident Index is still rising.

The economy is heading for recession but hasn’t rolled over yet.

The yield curve is extremely inverted. The 10-Year Treasury Constant Maturity Minus 3-Month Treasury Constant Maturity spread is the most negative it has been since 1980. This is a signal with 100% accuracy since it always precedes recessions and never gives a false signal.

The stock market is still overvalued. Prices have not declined significantly even though the Fed has reversed the policy (zero fed funds rate) that pumped up the bubble in the first place.

Be careful out there. Even though the Fed has decided to slow the pace of raising the fed funds rate they clearly intend to maintain and not cut in 2023. I think the stock market will pop when the Fed announces their next raise (likely to be 0.25%) but the economy is a battleship with a lot of momentum. It’s slowing as the Fed intended.


  1. About 3.1 million People are Working in the Staffing Industry Every Day. Temporary employees make up about 2.1% of the U.S. workforce, which equals roughly 3.1 million people.Sep 28, 2021


110800 have been laid off in the last 5 months including 35k in December. Wendy’s link but most of the article is behind a paywall. Those stats were just above the paywall.

The problem with this report is the 35k included seasonal workers right after Christmas.

Around 19k temp workers on average were cut in each of the prior 4 months.

20k/3m = .00666667 or .66% of the temps are getting laid off each month not including December.

On the flip side the LEI is heading to a recession. Not an employment recession but an asset led recession. Equity prices and bond prices can fall with very few layoffs in the works.