Friday, August 06, 2010

Employment Report: Temporary Help and Diffusion Index

by Bill McBride on 8/06/2010 04:09:00 PM

This post is a little more technical ...

Earlier employment posts today (with many graphs):

  • July Employment Report: 12K Jobs ex-Census, 9.5% Unemployment Rate for graphs of unemployment rate and a comparison to previous recessions.
  • Employment-Population Ratio, Part Time Workers, Unemployed over 26 Weeks

    Temporary Help

    From the BLS report:
    The number of jobs in temporary help services showed little movement (-6,000) over the month.
    The following graph was used early this year as the basis for several optimistic employment forecasts (I disagreed).

    Temporary HelpClick on graph for larger image in new window.

    This graph is a little complicated. The red line is the three month average change in temporary help services (left axis). This is shifted four months into the future.

    The blue line (right axis) is the three month average change in total employment (excluding temporary help services).

    Unfortunately the data on temporary help services only goes back to 1990, but it does appear that temporary help leads employment by about four months.

    The thinking was that before companies hire permanent employees following a recession, employers first increase the hours worked of current employees and also hire temporary employees. After the number of temporary workers increased sharply late last year, some people thought this might be signaling the beginning of a strong employment recovery.

    I was skeptical and joked that "We're all temporary now!" As this graph shows, the hoped for surge in overall hiring didn't happen. There are a number of reasons why employment growth is sluggish following the credit bust - mostly related to excess capacity in many sectors, and the excess supply of houses (usually new residential investment is one of the key sectors for employment at the beginning of a recovery).

    This will be my last post with this graph.

    Note: the temporary hiring for the Census is excluded from this graph.

    Diffusion Index

    Employment Diffusion IndexThe BLS diffusion index for total private employment was steady at 55.6 in July. For manufacturing, the diffusion index is at 50.0; down from 53.0 in June, and down sharply from 65.9 in May.

    Think of this as a measure of how widespread job gains are across industries. The further from 50 (above or below), the more widespread the job losses or gains reported by the BLS. From the BLS:
    Figures are the percent of industries with employment increasing plus one-half of the industries with unchanged employment, where 50 percent indicates an equal balance between industries with increasing and decreasing employment.
    The increase in the diffusion index earlier this year was one of the clear positives in the monthly employment reports. The decrease in the diffusion index over the last few months (falling to 50% for manufacturing in July), is disappointing.