A Major Red Flag in the Jobs Market Few People Are Talking About
The shockingly bad May jobs report dumped a bucket of cold water on central bankers and mainstream pundits. A June interest rate hike that was a foregone conclusion just a week ago disappeared like a teenager when it’s time to do the dishes. Suddenly, a lot of people are starting to realize the great Obama economy isn’t quite as advertised.
Peter Schiff has said several times we are in a “phony recovery,” and the US economy is likely already in recession. A few other “contrarian” voices like Mike Maloney have echoed Peter’s warning. If we dig a little deeper, we find buried in the jobs data a major red flag that indicates that they are probably right.
The number of temporary jobs has been on the decline since peaking last December. In May, the economy shed 21,000 temp jobs, bringing the total to nearly 64,000 lost since December of last year.
Why is this so significant?
If you look at the numbers, the exact same thing happened prior to both the 2001 recession and the 2008 Great Recession. Temporary jobs began to fall rapidly just prior to both economic downturns. In 2007, the number of temporary worker began to fall even as the economy was still adding jobs. The five-month decline in temporary workers since December of this year would be exactly what you would expect if the US economy was entering into recession.
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Temporary employment is known as a leading indicator. Because they are easier to hire and fire, temporary workers are generally the first to feel the impact of changing economic circumstances. If you look at the recovery after the great recession, companies began hiring temporary workers first. It was an early sign they wanted to hire, but weren’t willing to commit to permanent hires. Now were seeing the opposite. Wolf Richter explains why:
Staffing agencies are cutting back because companies no longer need that many workers. Total business sales in the US have been declining since mid-2014. Productivity has been crummy and getting worse. Earnings are down for the fourth quarter in a row. Companies see that demand for their products is faltering, so the expense-cutting has started. The first to go are the hapless temporary workers.”
Janet Yellen and government officials can keep telling us the May jobs report was just a blip on the radar and everything is great, but signs of trouble are flashing brightly for all to see.
This post is part of our ongoing series Data Dependent: Reading Between the Lines, where we examine the real economic data not reported in the financial media. Click here to read all our articles in this series.
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