Employment Services Industry Data Signals December Employment Growth

By Charles Thibault on December 9, 2009 in Staffing Industry.

The Employment Services industry has been growing over the past 4 months, according to data from the Bureau of Labor Statistics. This is important because over the past 20 years, the Employment Services industry has lead the rest of the economy both entering and exiting new business cycles – by about 4 months. Recent gains in the Employment Services industry means that US Nonfarm Employment could grow in December.

Movements in the Employment Services industry lead the rest of the economy because of the nature of temporary workers. When the economy is in a downturn, it's easier to end a temp worker's contract that to lay someone off. In an economic upturn, it's less risky to hire someone first as a temp, with the possibility of permanent employment to follow.

The graph below shows employment changes over the past 11 months in the Employment Services industry, the Temporary Help Industry sub-category, and total US Nonfarm Employment. (Changes to Employment Services employment and Temporary Help Services employment are on the left axis, and the change in Nonfarm Employment is on the right axes).

Focus Time Series

By "lead", we do not mean that the Employment Services industry is so large that it can, on its own, generate employment gains. In November, only 2.6 million workers were employed in Employment Services industry, compared to 131 million total nonfarm workers. By "lead", we mean it in a statistical sense. Movements in the Employment Services industry presage movements in the rest of the economy – in this case, the Employment Services industry leads the rest of the US economy by 4 months. How many months in a row has the Employment Services industry grown now? 4.

Notice below how over the past few economic cycles, the Employment Services Industry (blue line) has always crossed the "zero line" before Nonfarm employment (olive line). The Employment Services industry crosses the zero line both entering and exiting business cycles. (The graph above is the month-over-month change in employment, and below are year-over-year changes. This is why the data in the graph above above has crossed the zero line but it hasn't yet in the graph below – we're still below last year's employment levels, but above this summer's).

comparative

The following table shows the correlation coefficient between the year-over-year percent change in Employment Services industry employment and the year-over-year percent change in Nonfarm Employment, since January 1985. We show this correlation for different lagged values of the Employment Services industry growth rate (for example, "last month's Employment Services data with this month's Nonfarm data" is the 1st lag). Notice how the predictive power is the greatest at the 4th lag.