by Calculated Risk on 12/21/2009 02:43:00 PM

First a chart that is being circulated by some of the more optimistic forecasters:

Click on graph for larger image.

This chart compares the monthly change in temporary help services (shifted 4 months into the future) and the monthly change in total employment. Sure enough temporary help tends to lead total employment.

Note: chart uses three month average change. Source: BLS.

A number of analysts are now forecasting a surge in employment in early 2010 partially based on this chart.

This surge in temporary help is following the usual pattern as Louis Uchitelle notes in the NY Times: Labor Data Show Surge in Hiring of Temp Workers

The hiring of temporary workers has surged, suggesting that the nation’s employers might soon take the next step, bringing on permanent workers, if they can just convince themselves that the upturn in the economy will be sustained.
...
"When a job comes open now, our members fill it with a temp, or they extend a part-timer’s hours, or they bring in a freelancer — and then they wait to see what will happen next,” said William J. Dennis Jr., director of research for the National Federation of Independent Business.

And that is the real question: what comes next.

I've been forecasting a strong second half for GDP since late Spring, so I'm not surprised about the pickup in Q3 and Q4 GDP. This increase in GDP has been driven by the stimulus spending, some inventory restocking, and some export growth.

But my concern is about 2010.

And this is the concern of the hiring managers mentioned in the article:

If this restocking of shelves and warehouses were to stop or slow next year, a possibility that concerns Mr. Littlefield and Ms. Baker, then the temps, freelancers and contract workers they and many other employers now use would have a harder time moving from casual to regular employment.

If the recovery stalls or even slows - as I expect - then employment will not pick up sharply.

For more, including some cautionary comments from a BLS economist on using temporary help, see Tom Abate's article in the San Francisco Chronicle. And for a graph of temporary help vs. the unemployment rate, see my earlier post on Temporary Help.