January 2018

Con Te Partiro...
 

Is there really a shortage of workers or workers who want to work ...
 

Dissecting a tangle of squiggly lines ...
 

[Note: depending upon how well your browser and / or email program renders this chart, it may be difficult to view; we suggest you click on it to open a larger version.]

The Great Resignation continues -- or does it and is it really something else?

And the results are ...

Last week, and several times this week, we surveyed our subscribers asking if and how the ending of the enhanced unemployment benefits impacted their staffing operations. Although we did not get the number of responses we hoped for, there were enough to report them back to you. And the comments we received were very enlightening. To review the survey questions, go here.

Geographically, there was a broad cross section across the country with some responses reporting back at a local market, state, regional, or national levels, which made up just less than a quarter of the responses. And more than 90 percent of the respondents knew when the enhanced benefits ended, it is a bit disturbing that the remaining 9 percent did not considering the business they are in.

As for the market segments of the responses, for which multiple responses were accepted, it was pretty much all over the board, with almost 75 percent in clerical / office, 50 percent in warehousing, about 45 percent in light industrial and the same amount in customer service including call center -- all the rest of the categories were under 30 percent. Because of the small number of responses per market area, it was not possible to draw even bad or inaccurate conclusions regarding how ending enhanced U.I. benefits impacted any market or staffing service segment.

Almost two-thirds did not see an increase in applicants or inquires about available jobs, but 14 percent did and there were three write-in votes: one for "Yes, but it was only temporary," one for "Yes, but more of a trickle than a wave," and one for "We saw more activity a few weeks before the benefits ended and ongoing."

When queried about what type of arrangements that new applicants or inquiries were looking for, it was confirmed almost two-thirds percent of the respondents did not see an appreciable increase in applicant or inquiries. However, a solid third were interested in direct hire opportunities, followed by temporary-to-hire at under 15 percent, and about 10 percent looking for temporary jobs only. There was a write in for "Remote" and another "Saw an increase, but not sure tied to unemployment. They didn't care, they just wanted a job."

Although nearly 60 percent did not see an improvement in their fill rate after the enhanced unemployment benefits ended, almost 30 percent did and a bit less than 15 percent did not.

CONCLUSION: This survey is far from being a true reflection of what did and continues to occur regarding this subject, but ending enhanced unemployment benefits appears to have had a somewhat positive affect on some staffing businesses, albeit likely minor and highly dependent upon geography and sector serviced. 

However, as previously stated, the comments section of the survey -- as well as comments received from those not directly involved in providing staffing services but auxiliary services to the sector such as consultants -- were quite illuminating. Here is some of the more insightful feedback:

1) "... the combo of govt funding and covid caused a protracted length of time in which folks found supplementary ways to create an income. This, along with savings folks have accrued, will keep people off the 'official' count till Jan of 2022."  In other words, people found alternative means of earning money.

2) "The sustain high unemployment is more likely to be accredited to a skills gap, i.e. the jobs opening up first are a bad match for those still unemployed because they either:
    A) lack the skills required,
    B) trained for a more highly skilled occupation and are, wisely, continuing to look for jobs in their field, or
    C) outside the regions where the jobs are appearing first."

3)  Lack of child care due to lack of availability -- even in good times, day care's economic viability can be frail at best. Anecdotally, we have hear that "... many childcare facilities failed to survive the pandemic. And with parents laid off or working from home, these facilities lost significant revenues. In addition, until the vaccines are approved for those under five many parents are refusing to send their kids completely unprotected. It's not the facilities they don't trust; it's the good sense of other parents."

4) Although there certainly are people "abusing the system" and may be "addicted to 'eating from the government trough'." and therefore find it easier to do that than get back to work. But it should be pointed out that "gaming the system" exists at all strata of society but in different and perhaps more sophisticated ways and is bipartisan as well.

5) It comes as no great -- or even a minor -- revelation that staffing services "... have  more job orders than people to fill them." But that same staffing executive goes on to say, "However, companies that pay more do get their positions filled and the turnover is less. It all comes down to pay. Companies that are trying to hang on by paying $12.00 per hour are floundering. The pendulum has swung to the advantage of the employee."

6) "The results are somewhat obscured by the COVID situation and supply chain challenges partially offsetting the sun-setting on the three UE extended and enhanced benefit programs."

It has been suggested that employment also did not recover quickly after the influenza pandemic of 1918-1919 either. We looked into this but could find no acceptable and / or verifiable data. First, the pandemic coincided with the end of World War I; employment and economic data was not very good at the time; and although the recession in 1920-21 did occur, that is best attributed to the actions of the Federal Reserve at the time and not the pandemic.

For those who filled out the survey and provided their contact information requesting the raw data, we will prepare and send that out by early next week. We thank all for participating.

How jobs have returned ... and how much further they need to go to return to where they were ...

We started this year with our report of the December 2020 employment situation looking at how some staffing-centric industries / sectors have recovered by November -- or had started to recover -- from the massive  loss of jobs due to the pandemic. It has been more than half a year so we think it would be of interest to see how far jobs have come back -- and possibly how far they still have to travel to get back to pre-pandemic levels.

[note: depending upon how your browser and / or email program renders the above chart, it may be difficult to view; we suggest you click on it to open a larger version.]

Although the unemployment rate for women 20 years old and older declined in April from the previous month, so did the actual number of employed women. Conversely, the unemployment rate for men in that same age group increased, so did the actual number of employed men. Before your head explodes trying to figure out why the overall unemployment rate increased, let's just say that there is a major labor storage thought many sectors of the employment economy.

That translates into major pain for the staffing sector, or in the words of at least one staffing executive, "... we have a zillion open job orders and no one to fill them."  But is the demand as over-the-top as it may appear via staffing services' unfilled orders? Again referring to a comment -- which was echoed by shortage in the supply chain for goods in this week's Beige Book, ".. perceived demand may be overstated by clients placing orders with more staffing firms than is typical."

Last month we titled our opening analysis as "Has unemployment been misstated? Yes -- read on if you want more detail." The title of an article published in the spring 2020 issue of Chicago Booth Magazine, which is the alumni magazine of the University of Chicago Booth School of Business, pretty much confirms what we surmised last month: "U.S. Unemployment Is Even Worse Than the Official Numbers Say." Click here for the one-page research digest.

It's a very important question, so this month we look at this subject with different data to try and figure out not necessarily what the actual unemployment rate is, but what is the real trend with employment / unemployment.

The pandemic has affected the employment-to-population ratio, which normally `varies little from month to month. But in April 2020 it plummeted 8.7 percentage points from the previous month when it rarely varies more than 0.1 percentage point on a sequential basis. Likewise, but not as dramatic, for the civilian labor force participation rate that dropped to 2.5 percentage points in April. Both these metrics have been making gains since then, but still are not quite back to pre-pandemic levels.

The changes in the percentage changes do not necessarily tell what really is happening. The next charts shows the change in the size of the civilian labor force from month to month. Again, pre-pandemic it has been fairly steady -- average a change of about 200,000 for the months of May 2019 to February 2020, inclusive, before starting to decline in March and plummeting in April 2020 and starting to rebound in May 2020.

But the question remains about what about those who think of themselves as no longer in the workforce -- are they just unemployed and no longer consider themselves as part of the labor force but may return if an opportunity presents itself, or have they left the workforce for good. These data really does not answer that question.

Regardless, it appears that many of people have left the workforce. The exodus began in March 2020 and peaked the next month in April, when many more decided to hang it up and file for a separation from the labor force. However, in the subsequent months of May and June -- although many are still leaving the labor force -- the rate of exit is moderating, but still much greater than it has been.

In our report of the April 2020 employment situation, we questioned, "Are workers accurately reporting their job prospects or is it wishful thinking that they will be recalled from layoffs? Also, are employers are not being frank by dangling the prospect that furloughed workers will be the first to be rehired when, in fact, employers will use this as a way to eliminate workers whose productivity does not meet the possibly new and reduced level of activity?"

One month later in a 15-page FAQ released simultaneously with the May jobs report in June 5, the Bureau of Labor Statistics, admitted that many workers were misclassified as "employed but not at work" when in reality they "... should have been classified as unemployed on temporary layoff." We won't get deep into the weeds why the misclassification error occurred, but we are quite sure there was no political pressure -- actually the only political appointment at BLS is the commissioner and he has no influence on the final published numbers, which is a highly automated process overseen by career BLS economists.

With that said, BLS's FAQ elaborated" "Of the 8,400,000 employed people not at work during the survey reference week in May 2020, 5,400,000 people were included in the 'other reasons'."  This was much, much higher than the 549,000 average for May 2016-2019. "BLS analysis of the underlying data suggests that this group included workers affected by the pandemic response who should have been classified as 'unemployed on temporary layoff'." 

Outside economists estimate that this error means that the actual April unemployment rate should have been closer to almost 20 percent instead of 14.7 percent that was officially reported. And the May unemployment rate should be around 16.1 percent instead of 13.3 percent that was officially reported.

A little side note from "the weeds": answers from the survey are accepted as recorded and "no ad hoc actions are taken to reassign survey responses." BLS further explains "Such a misclassification ... can occur when respondents misunderstand questions or interviewers record answers incorrectly." Obviously, BLS and the Census Bureau -- Census actually administers the survey instrument for BLS, but we digress -- acknowledged the problems the pandemic has had on the data and are conducting additional training and adding more instructions into the survey instrument.

In blog post on June 29, which was essentially a restatement of the June 5 FAQs, the BLS commissioner admitted, "Although we noticed some improvement for May, the misclassification persisted." 

Temporary Layoffs compared to permanent job losers ...

Now that we have either made the unemployment situation clearer or completely confused you at this point, let's look at those who think they are on temporary layoff and those who know that they have permanently lost their job.

As you can see, more people considered themselves as having permanently lost their jobs in June from the month prior and fewer considered themselves on only a temporary layoff.

Specifically, 4,778,000 fewer considered themselves on temporary layoffs in June from the previous month, probably because they got called back to work. But, 1,604,000 more consider themselves having permanently lost their job in June  than in February, which was the month before furloughs began due to the pandemic.

As we've mentioned before, there is likely a large number of those who think they are on a temporary layoff but, in reality, have little chance of being called back because there will be no job or company to go back to.

Last month (see the discussion here), we discussed workers on self-reported temporary layoffs questioning if "these workers [are] really only on temporary layoffs? Obviously, returning to work is contingent on a business to return to -- and many businesses may not survive and reopen. Are workers accurately reporting their job prospects or is it wishful thinking that they will be recalled from layoffs? Also, are employers are not being frank by dangling the prospect that furloughed workers will be the first to be rehired ... It is likely that many of the jobs lost will not be coming back quickly, or even not at all."

The Federal Reserve's Beige Book, which came out last week covering the period from early April to mid-May (our summation of it highlighting comments relevant to staffing, IT, and sectors relevant to them is here) seems to bear that supposition out. In addition, the employers who are trying to call back workers are finding them not willing to come back in some cases because the extra $600 weekly supplement to regular unemployment benefits is making it financially beneficial not to return to work, e.g.: "...  overcoming the lure of expanded unemployment benefits." That weekly supplement expires on July 31. We think it's important to be reminded that unemployment benefits not only provide assistance to workers and their families, but enable those who are out of work to continue to be actively spending consumers, which is the basis for the economy. Keep in mind that consumer spending is responsible for about 70 percent of GDP so regardless of political leanings, the money being distributed to the unemployed regardless fairly or not, may be assisting to save the economy from a black hole implosion.

If you have not yet read the May edition of the Beige Book, we highly suggest you review it. To lure back workers, some employers are "... temporarily increasing wages to retain essential on-site staff, to match the amount employees could earn on unemployment, or to reduce absenteeism." Although bringing staffing levels back can be a boon to staffing companies, we warn for a possible PR nightmare as one staffing contact told fed researchers, "Overall, contacts expressed optimism, 'excited' (as one put it) to facilitate hiring during the upcoming recovery." IMHO, nothing wrong with staffing executives being optimistic about increased activity, but being "excited" may be going a bit too far.

Initial filings for unemployment benefits ...

For those who do not follow our Twitter feed, the latest number -- it was released yesterday and is on a one-week delay -- is down more than 300,000 from the previous week. But it is still scary high for those filing for unemployment benefits for the first time for the week ending May 30, 2020.

However, although this metric continues to slow, at more than 1,600,000 people filing for unemployment for the first time, this metric is still no where near the pre-pandemic level of around 222,000 per week, which is the average from January 2018 to mid-March 2020.

Temporary Layoffs compared to permanent job losers ...

Since we started off discussing this subject and in detail from last month, we thought it insightful  to update this information .

As you can see, more people considered themselves as having permanently lost their jobs in May and fewer considered themselves on only a temporary layoff.

Specifically, 2,720,000 fewer considered themselves on temporary layoffs in May from the previous month, probably because they got called back to work. But, 1,016,000 more consider themselves having permanently lost their job in May than in February, before furloughs began due to the pandemic.

On March 14, which is also the same week data are collected for the two surveys that are used for the monthly employment situation and from one of which the official unemployment rate is calculated, there were less than 3,000 COVID-19 cases in the United States.

As the two charts here show, the wholesale filings for unemployment insurance did not start until the next week.  Therefore, the U.S. Bureau of Labor Statistics monthly employment situation for the month of March may not properly reflect the layoffs / furloughs that employers started in earnest in the second half of the month.

Instead of using the seasonally adjusted data as most media outlets report, we chose to use the raw, not seasonality adjusted numbers to show actual activity and not statistically derived numbers. Also, although self-employed and gig workers may be now eligible for unemployment benefits, they are likely are not included in the current claims counts at this time and may not qualify if they don’t have the proper work and pay documentation. At this time the guidance from the Labor Department about the kinds of acceptable documentation, and states’ interpretation of that guidance -- are the biggest unknowns.

These two charts track the same time periods, but in order to see what the 'normal' trend was before the number of filings jumped for the week ending March 21 and again for the week ending March 28, a different scale was required for the number of initial claims for the week of March 14. To reiterate, these charts to NOT show cumulative data, but the raw number of initial unemployment insurance claims for the indicated weeks.

We are not going to even venture a guess as to when -- and by what magnitude -- lost jobs return. However, to paraphrase James Carville's from 1992 of what now has become a political cliché "It's the economy, stupid," the return of the jobs, "It's a public health issue, everyone."

Be safe, be careful, be mindful -- and above all -- be kind and compassionate.

Best regards,

Bruce

(from Sarasota, FL, looking after my 91 year-old mother recovering from a fall requiring surgery in late January)

One of the big questions facing economists and the financial universe is if job growth is slowing that could mean trouble for the overall economy, regardless of the current coronavirus, a.k.a. COVID-19, situation. However, keep in mind that employment is considered a lagging indicator. In addition, in today's ongoing tight employment market, employers may still hang on to workers longer than they normally would in a slowing economy because of the time, effort, and resources spent to bring them on in the first place.

In order to eliminate any effect of government hiring -- including the U.S. Bureau of the Census's hiring and discharging workers as Census 2020 ramps up and down and up and down -- we will only look at changes with private-sector jobs.

A clear trend is difficult to discern in the number of private-sector jobs by just looking at squiggly lines regarding month-over-month changes as seen in the first / top chart. But a somewhat better picture emerges when looking at job growth on a quarterly basis as seen in the second / bottom chart.

In Q1 2015, private sector jobs expanded by about 2,884,000 from Q1 2014, the most for the time period examined (2007 to 2019). But almost four years later by Q3 2019, jobs only increased 1,803,000 from a year earlier.

From late 2010, year-over-year quarterly changes in private-sector jobs have more or less steadily increased and reached a zenith in Q1 2015 but then began to steadily declined until 2018 when they began to recover for three quarters, but then started to decline again in Q4 2018 and for most of 2019, but increased in Q4 2019.

Did the jobs machine enter a new phase or was just taking a breather?  Only time will tell ... and of course the big unknown is how deeply the coronavirus will infect the nation's and the world's employment economy. And speaking of COVID-19, the Federal Reserve's March Beige Book, which was published two days ago, had this to say ...

Fed's Beige Book Finds Uncertainty about the Future ...

Comments about COVID-19 in the March Beige Book published on March 4 were based upon interviews and comments received on or before February 24th, which was the the first day of the recent stock market plunge, and mainly limited as 'disruptions in supply chains.' In addition, many employers expressed in one way or another that they were, "slowing down hiring due to election uncertainty."

Other remarks that may be of interest was that manufacturing strengthen in some markets and sectors where it had previously weaken and weaken where it had previously strengthen. Of course, the labor markets remains tight in most markets and across many sectors and for a wide variety of skill-sets. This is resulting in "modestly higher wages" and "more in-house training and supervision." However, at least some employers "do not believe larger wage increases will attract more applicants."

There are several comments specifically about staffing services. For example, "One staffing contact noted that many clients were converting current temporary workers to permanent staff and not placing new temp orders."

Our focused summation of the latest Fed Beige Book can be found here.

Time to change thinking about a recession?

If you are not a recent subscriber, you know that we have been talking about the risk of a recession developing in the near-term future. But, it appears that the risk of a recession -- at least in 2020 -- has been downgraded and no longer an imminent threat, or is it?

One of the better leading indicators for a recession is an interest rate inversion which is when short-term interest rates are higher than long-term rates. We first discussed this in April 2018 before an inversion actually occurred, but interest rates seemed to be heading in that direction. Then in March 2019 an inversion started between three-month and the ten-year treasuries, but not with the two-year treasuries. And then a few months later in August 2019, a very brief inversion occurred with the two-year treasuries as well. 
 

In 2019 the Federal Reserve Board -- possibly because they felt the risk of a recession was increasing -- stopped raising interest rates and then started to lower them. Recession averted? Maybe.

As the chart for the ten-year and the three-month treasuries shows, an inversion started in late March 2019 and lasted more than six months before eventually ending in early October 2019 and reached its low point on August 28, 2019.

The inversion for the two-year treasuries performed fairly similarly, but occurred only for three days in late August and reached its low point on August 27, 2019, but was barely an inversion by historical standards.

There currently are no clear and strong headwinds that will cause the economy to reverse direction and descend into an endogenous recession. An endogenous recession is the result of the economy's own making. The Great Recession of 2007--2009 is an example when consumers over-borrowed and over-invested in housing and the real estate market collapsed, bringing the rest of the economy with it.

There are also exogenous recessions, which is when some outside force or forces knock the economy down with a body-blow. The multiple oil crises of the 1970s are good examples as well as current international trade and tariff issues and the current Middle East situation.

By most accounts and indicators, the economy is expected to continue to grow and a recession in 2020 is unlikely at this time but if one occurs, it is expected to be mild. The consensus estimate for GDP growth will be slower than in 2019 and dip below 2 percent in 2020, absence of traditional "election year pump-priming" or other currently unforeseen geo-political developments.

Yo, readers, it's time, again ...

In case you missed it, the Federal Reserve Board's periodical recap of the nation's economy -- commonly referred to as the Beige Book -- was published last week on the day before Thanksgiving. From looking at our notification email's "click-to-open" stats, apparently many of our subscribers to this recap of the report had already left for the extended weekend. Here're a some sample  statements from our recap of the November 2019 Beige Book:

What the future may hold  ...

Potpourri  ...

Last month, we said we would explore if or how shifting demographics -- and / or some other reasons -- are responsible for a declining labor  force participation rate. But some other interesting developments since then dictate we address a few other subjects this month.

First up -- the "INVERSION"

The financial media starting screaming 'A Recession Is Coming, A Recession Is Coming' when interest rates inverted -- that is the rate for short-term treasuries was higher than for the ten-year. More than a year ago and earlier this year, we discussed that an inversion was likely coming and why this is considered a possible indicator of an approaching  recession (click on the links above to see our previous analyses). But, as our updated chart indicates, the actual inversion last month was much less, or just getting started, at this time than previous ones that preceded recessions.

Second up -- more than 500,000 fewer jobs than previously reported ...

You may have read that the preliminary revision of the current employment statistics data (a.k.a. the CES, or jobs report), which is a survey of businesses, showed that the previously published number of nonfarm jobs was too high by 501,000, or 0.3 percent. Take out the government sector, and the previously published number for private-sector jobs were off by 514,000, or 0.4 percent. Some of the bigger losers were retail trade (overestimated by 146,400), professional and business services (overestimated by 163,000), and leisure and hospitality (overestimated by 175,000). The preliminary revision is only for March 2019 and  don't expect to see any corrections at a more granular level for awhile since all the numbers are not updated until the final benchmark revisions are made. And that does not happen until the January 2020 employment situation is released in February 2020. We can't wait, smiley face / sad face / sarcastic face.

Third up -- latest Beige Book ...

Eariler this week, the Federal Reserve Board published its Beige Book, which is a summary of comments from employers and business executives throughout the country regarding labor and business conditions and future expectations. Although there are many mentions tariffs and trade policy uncertainty as risk factors,  the near-term outlook is generally optimistic. One comment pretty much summed up the feelings throughout many areas of the country: "A few firms said they were holding back or being cautious due to uncertainties around trade, the federal budget, and the availability of labor."

The absence of adequate labor supply -- particularly acute at both the low- and high-end of the skill scale -- continues to limit businesses ability to expand and grow. Staffing services growth continues to be limited by a lack of candidates prompting one contact to say, "... labor pool in its area as 'nearly nonexistent.'"

Our summation of the September 2019 Beige Book, which highlights comments relevant to staffing services and the major sectors they service, can be found here as well as a link to the full book.

Last month we asked, "can the unemployment rate decline any further?" Now, we try and answer that ...

We offer an unqualified maybe.

The unemployment rate has more-or-less been steadily declining since late 2009 and early 2010, after the end of the Great Recession.

But, the same cannot be said about the labor force participation rate.

After the end of the fairly brief 2001 recession, the labor force participation rate continued to decline for about two years before stabilizing and stayed fairly steady for about four years until the next recession.

It resumed a downward trend during the Great Recession and then continued on a downward trend for about another five years before stabilizing in late 2013 / early 2014 and has pretty much remained at that level ever since and has not changed much for the past five years. Prior to the Great Recession when the labor force participation rate was stable, the unemployment rate steadily declined. After all, this was a period of economic expansion -- ergo, employers also hiring -- so with the participation rate steady, the unemployment rate duly declined.

We've seen this before, but not quite like this ...

The relationship between the unemployment rate and the job vacancy rate is called the Beveridge Curve.

Typically, when there are a lot of unfilled job vacancies it is because people are working and unemployment goes down; conversely, if there are not a lot of job vacancies, people cannot find jobs and unemployment is high. The reason we believe this relationship can work as an early sign of an upcoming recession, is that job vacancies fall and unemployment goes up during a recession.

This occurred during the last two recessions so the question-of-the-day is if this is occurring now? Let's discuss each item separately and start with the unemployment rate.

Month-over-month changes aside, the unemployment rate has likely stabilized and the average for the past 12 months charted (March 2018 to April 2019) is 3.8 percent. But, has it really stabilized or has it simply cannot go down any further? As probably every staffing professional knows, there really are very few employable people who are not working. See our most recent summation of the Federal Reserve Board's Beige Book to read what staffing executives as well as many other employers are saying about the shortage of people available to fill open jobs. Coupled with the ongoing demographic shift as more people age and / or retire out of the workforce, we conclude that the most likely reason the unemployment rate has stabilized is because it just simply cannot go any lower.  A more in-depth discussion on this subject -- can the unemployment rate decline any further? -- will be forthcoming in this space next month.

But, the job vacancy rate tells a different story. It has been rising since the end of the recession as businesses created jobs at a faster rate than they were filled. Although the job vacancy rate is at the highest level it has been for some time, it too has remained fairly stable for the past 12 months. But, unlike the unemployment rate that probably simply cannot go lower, the number of jobs that businesses create is not subject to restrictions. Employers do not create new jobs because they believe that their level of business activity cannot justify increasing their payroll. Sure, some employers have probably decided it would be fruitless to try and hire new employees because there are none out in the labor force so why even try. Anecdotal reports are surfacing that business are putting resources and money into automation in order to increase productivity instead of hiring new workers who they believe do not exist. Also, businesses also feel that the high degree of uncertainty with tariffs and trade makes them to take pause in bringing on more workers.

The trend of stable job vacancies, albeit at a relatively high level, could be a sign of a static amount of business activity that may be turning downward in the future and the economy heads into a recession. Remember, recession are retroactively declared, and the lag is often many months. Should job vacancies start to fall and unemployment start to creep up, it could mean that a recession has arrived.

More on the upcoming Census ...

We got an unusually large amount of feedback from last month's warning about the "other" potential problem with the 2020 Census, we thought a little further detail was required.

If you missed it last month, it can be found here.

Although the change in the overall number of jobs attributable to the Census may only be a minor bump in the big picture, it does appear to move the needle. The interesting trend to the jobs and unemployment trends is that hiring large numbers of people for the Census starts about a year prior to Census Day, which is April 1, and continues for several months after.

As discussed last month, some of the success of the 2010 Census can be attributed to the high quality of enumerators who where available due to a high unemployment rate. The Great Recession officially ended in June 2009, which is about the same time that the Census Bureau starts staffing up on a temporary basis for the address verification process and then calls many back to follow-up with households that have not returned the census form.

Clearly, the total job count number experienced a bit of a boost by the Census in 2010 and then a bit of a decline immediately when the data collection portion ended. Although the economy was just at the beginning of the current expansion period, the benefit of Census hiring to the jobs number is easy to overlook.

But the effect of the 2010 Census on the unemployment rate after the end of the Great Recession and the beginning of the current economic expansion is harder to discern, or if the Census had any impact at all.

Did you see what the latest Fed Beige Book said about staffing services?

Two days ago, the Federal Reserve Board published its report on regional economic and employment conditions called the Beige Book. We  excerpt passages relevant to the staffing and IT sectors, developments in major industries that drive the staffing industry, as well as employment in general.

One very common theme heard from employers throughout the country was concern about trade uncertainty and tariffs -- so much so that some staffing firms are seeing client companies increasing contract lengths and cutting back on hire hire services.

Some employers, in order to find suitable candidates, are recruiting directly out of high school. In addition, some firms are: "adjusting employment standards" as well as "directing more wage dollars towards retention efforts," to lessen other employers poaching workers, especially IT professionals.

Although wage pressures are throughout the entire labor market spectrum, pressure is greatest for the low- to mid-Level skilled positions. The Book includes comments regarding how the labor shortage has given staffing firms some pricing leverage that have been able to increase billing rates.

Our summation of the latest Beige Book, which includes a link to the full publication, is here:

Did an interest rate inversion really happen?

But what the financial / business news media failed to mention was that the yardstick was changed. Instead of comparing rate of 10-year treasures to two-year treasuries, an interest rate inversion did indeed occur when compared to the three-month treasuries. An inversion did NOT happen with the two-year treasuries. This is not to say that an inversion with the three-month treasuries does not seem to predict a recession as the charts demonstrate.

How permanent placement agencies and executive search services doing ...

Although temporary help services are by far the largest component of what officially is considered employment services, there are two other components. One is professional employer organizations (PEO) and the other is the combined category of employment placement agencies and executive search services, as it is officially labeled.

Latest on our two favorite indicators that give advanced notice of a recession ...

Two of our favorite indicators that move in advance of a recession are still not showing an immediate threat of recession, but continue to move closer to critical levels.

The first one is our version of the Beveridge Curve, which we last looked at a year ago in January 2018. The Beveridge Curve is the relationship between unemployment and job vacancies. Typically, when there are a lot of unfilled job vacancies it is because people are working and unemployment goes down; conversely, if there are not a lot of job vacancies, people cannot find jobs and unemployment is high. The reason we believe this relationship can work as an early sign of an upcoming recession, is that job vacancies fall and unemployment goes up during a recession.

But before that happens both trends tend to stabilize and remain flat before changing direction.  As the latest trendlines show in the chart -- Incidentally, there is no issue when the two trendlines cross -- it's just a statistical convenience that we use the same scale -- it appears that the unemployment rate has been essentially unchanged for the past few months as job vacancies may be beginning to level off, but it's really two early to tell if this is just monthly volatility or an actual trend. But, the job market continues to be very tight and vacancies high -- just take a look at our most recent summation of the Federal Reserve Board's Beige Book, which is an anecdotal look at employment and economic conditions around the country.

Another indicator that seems to be an accurate predictor of a recession is commonly referred to as an interest rate inversion, which we last looked at In April 2018.  Oversimplified, it's when short-term interest rates are higher than long-term rates (or when long-term rates are lower than short-term ones). It may be helpful to you to review our full discussion of how this trend predicts a recession.

Although it certainly appears as we are heading for an inversion, the Federal Reserve Board's recent announcement that they may ease up on interest rates increases in 2019 may avert an interest rate inversion.

In conclusion, although these two indicators appear to be heading into pre-recessionary territory, the economy is not there yet.

What temporary workers are doing and where they are doing it ...

In mid-2018, the Bureau of Labor Statistic published the topline results of a special, but periodic, supplement to its monthly survey that queries people regarding their employment situation, which is officially called the current population survey (CPS), but often referred to as the household survey. It is from this survey that asks about the employment status of people and from which statistics such as the unemployment rate is derived. In May 2017, several questions were added to drill down into people's job situation focusing on "contingent and alternative work arrangements" as this special supplement to the CPS is titled. The last time this supplement was administered was in 2005.

Instead of detailing the several different specific types of contingent and alternative work arrangements as defined by BLS, we will compare people employed by temporary help services and people with so-called traditional employment relationships.

As you will observe in the first set of pie charts, the distribution of occupation is somewhat different for temporary help workers and those in traditional relations in two major occupational groups. Production, transportation, and material moving occupations, which includes manufacturing as well as warehousing jobs, is nearly 40 percent of temporary help workers, but only about 12 percent of those in traditional employment relationships. Conversely, management, professional, and related occupations composes about 22 percent of temporary help workers compared to almost 41 percent of those in traditional employment relationships.

To drill down further after looking at temporary workers' occupations, it follows that more than 32 percent of them are at manufacturing companies; this is in contrast to only 11 percent of workers with traditional employment relationships are in manufacturing. However, almost 27 percent of temporary workers are assigned to professional and business services compared to only about 11 percent of people in traditional relationships. As for the combined education and health services sector, only 15 percent are he workers in that sector are temporary workers while 24 percent are those employed via traditional arrangements.

And as the second set of pie charts clearly illustrates, nearly three-quarters of temporary workers (74 percent) are working in only major three industrial sectors while less than half (about 46 percent) of those in traditional employment relationships are in those same major industrial groups.

Although staffing services have found success in servicing other industries / sectors, a majority of assignments are in only those three groups.

It's a giving time of the year ...

Last month, I was pleasantly surprised by the response to this request. But, since it was the second tiem in this section, perhaps some of you missed it -- and I want to make sure everyone has an opportunity to support this most worthwhile porject.

Through this monthly employment report, it has been my goal since for the past 15 years or so to provide an unbiased independent view and analysis of the employment and jobs situation with a focus on the staffing sector. And by looking at the stats from the email distribution service I use and feedback from readers, it appears that I have been successful for this free report. If you just noticed I sneaked in the word "free" pat yourself on the back for being very observant.

There are no plans to start to charge for this report -- but I do have a favor to ask.

Since I arrived in Boone, NC, coming up on five years ago, there is a non-profit, pay-what-you-can restaurant I go for lunch. It is F.A.R.M. Cafe (Feed All Regardless of Means) and a 501 (c) (3) organization with the goal ".. to build a healthy and inclusive community by providing high quality & delicious meals produced from local sources, served in a restaurant where everybody eats, regardless of means." We -- I can say "we" because I am now on the board of directors -- do not turn away anyone; if someone cannot pay, they can work for an hour in exchange for a meal. As with most, if not all, small local non-profits, revenues from daily operations only partially covers our expenses.

Therefore, I am asking my readers and followers to make a donation -- no limit. Go to F.A.R.M. Cafe to learn more about us and then hit the "Donate" tab. As I learned in sales training the first month I was hired by a staffing company more than 30 years ago, ask for the order. This is me asking for a donation -- Bruce.

Latest Beige Book offers insights to staffing services trends around the country ...

In case you missed it, the Federal Reserve Board's periodical recap of the nation's economy -- commonly referred to as the Beige Book --  was published two days ago. We've taken a 15,000-word document and distilled it down by two-thirds, focusing on comments and developments regarding staffing services, wage and employment trends, and sectors / industries relevant to staffing services. Overall, there were numerous reports of overall wages rising about three percent. If the following statements are intriguing to you, then you owe it to yourself to read our summation of the last Fed Beige Book of 2018.

• In at least one area of the country, "Most staffing firms reported increases in bill and pay rates, ranging from low single-digit increases to 10 percent ..."

• In another area of the country, "... staffing firms in markets with lower unemployment rates report that their average wage is up as high as 6.5 percent over the prior year."

We do this as a public service for our readers for free although donations -- see first item above -- are certainly welcome and accepted.

Uber is getting into the staffing business.

In a move that some are thinking could be a way for Uber to demonstrate it is diversifying its business ahead of an initial public offering planned for next year, transportation service Uber has created Uber Works. With a large database of drivers, Uber  looks to be pitching it as a business-to-business service ("a flexible, on-demand supply for our business partners") that is reportedly to provide a temporary workforce for corporate functions and special events with security guards and waiters.

It has been reported that after a trial run in Los Angeles, Uber Works is under development in Chicago where they are recruiting for a "City General Manager - Special Projects" to build a team and prospective candidates should have a "strong interest in the on-demand labor space." Uber Works, which will operate "as a start-up within Uber", is reportedly under the umbrella of their "Head of New Modalities" division. It is lead by a Uber executive that joined Uber in 2011, currently based in Washington, DC, and she was awarded that title just this past summer.

It will be interesting to watch how Uber will implement this new business. Although occasionally challenged, Uber drivers are classified as independent contractors -- how they plan to address the sticky and complex issue of misclassification of workers will be interesting to watch. As attention continues to focus on the "gig economy" -- the new term that appears to replacing the term "permatemps" of  the late 1990s -- so will the risk for employers. Yahoo Finance just posted a lengthy article about this subject yesterday, November 1, and the title says it all without saying it is a reason to use a staffing company: The Growing Gig Economy Brings New Worries for In-House Counsel.

Heh readers, it's time.

Through this monthly employment report, it has been my goal since for the past 15 years or so to provide an unbiased independent view and analysis of the employment and jobs situation with a focus on the staffing sector. And by looking at the stats from the email distribution service I use and feedback from readers, it appears that I have been successful for this free report. If you just noticed I sneaked in the word "free" pat yourself on the back for being very observant.

There are no plans to start to charge for this report -- but I do have a favor to ask.

Since I arrived in Boone, NC, coming up on five years ago, there is a non-profit, pay-what-you-can restaurant I go for lunch. It is F.A.R.M. Cafe (Feed All Regardless of Means) and a 501 (c) (3) organization with the goal ".. to build a healthy and inclusive community by providing high quality & delicious meals produced from local sources, served in a restaurant where everybody eats, regardless of means." We -- I can say "we" because I am now on the board of directors -- do not turn away anyone; if someone cannot pay, they can work for an hour in exchange for a meal. As with most, if not all, small local non-profits, revenues from daily operations only partially covers our expenses.

Therefore, I am asking my readers and followers to make a donation -- no limit. Go to F.A.R.M. Cafe to learn more about us and then hit the "Donate" tab. As I learned in sales training the first month I was hired by a staffing company more than 30 years ago, ask for the order. This is me asking for a donation -- Bruce.

No charts or graphs this month...

One economic development that has had economists puzzling over is the lack of strong inflation, especially in the current environment of ongoing low unemployment. This is important because high inflation is an indicator that the economy is overheating and one way the Federal Reserve Board keeps inflation under control is by raising interest rates. "Inflation" is a general term and there are several metrics that attempt to measure it that the Fed studies.

Late in August, the Fed's held an annual economic policy symposium Jackson Hole, WY, where central bankers, academics, finance ministers, and other prominent financial market participants discussed this year's theme of "Changing Market Structures and Implications for Monetary Policy."

One piece of research presented by a Harvard associate professor and conducted with the National Bureau of Economic Research was entitled "More Amazon Effects: Online Competition and Pricing Behaviors." Although the 42-page paper is filled with statistical formulas and graphs, the academic paper suggests that "algorithmic pricing technologies" among both brick and mortar retailers along with the transparency of pricing via the internet has kept a lid on prices for consumer goods (read: low inflation) -- hence, "the Amazon effect." End of Jackson Hole Symposium discussion.

However, another explanation of the Amazon effect is that it may only be just-in-time supply chain systems on steroids that improve productivity from product development all the way to delivery to the end customer. As staffing professional and executives realize, many services provided by the staffing sector can be considered as 'just-in-time labor supply'.

Those in the staffing sector are more than aware of how vendor management systems / management service providers as well as development in the online labor market have and are disrupting staffing services, which we discussed in detail in May and June 2015 (click on the months to see those discussions). We did not make the connection at the time, but perhaps these systems and just-in-time labor supply aspect of the staffing industry are also helping to keep wage growth as well as inflation in check.

Manufacturing revisited ...

But, as unit labor costs increase, as seen in chart B, due to an increase in employment, manufacturers may eventually invest more in automation in order to control labor costs (which today many employment market observers connect with artificial intelligence, but we digress).  This will result in more output per job and lower labor costs per unit produced. But until that occurs, the path that manufacturers are choosing to increase output is by adding jobs, or workers since output per job, or productivity, appears to have been stalled since early 2010.

There are several informal theories why growth for output per job, as well as overall output in the next chart, has leveled off. One is that this flattening may be attributed to it being at a historically high level, a point that many critics fail to mention. Second, the leveling off now could be indicative of a technology plateau and / or under investment in infrastructure supporting manufacturing. We must also consider how the change in the mix of industries affects output and output per job with a shift toward higher value-added, capital intensive manufacturing (think electronics) and away from lower value and more labor intensive industries (think textiles and apparel).

It should come as no surprise that manufacturers and most other employers continue to face -- to put it politely -- challenges in adding to their labor force in today's environment of historically low unemployment. (This issue was discussed repeated by the Federal Reserve Board's most recent Beige Book published about two weeks ago.) Increasing output as well as productivity, or output per job, via automation / technology can be difficult and expensive and those are investments manufacturers may not be willing to make, especially with the air heavy with uncertainty in Washington. The other option is to bring in more staff, at which output can continue to rise and if being judicious when adding to staffing levels, output per unit labor costs can be reduced. Does that sound familiar? It's straight out of temporary help service selling 201!

No doubt, business executives in all sectors are thinking about when the next recession will rear its ugly head. And it seems on almost a daily basis, we see something about an approaching interest rate inversion and that has historically been a fairly good indicator of a recession being just around the corner.

If you received our email last week about the latest Federal Reserve Board's latest Beige Book -- and read our summation of it highlighting developments about and affecting staffing companies' interests -- then congratulations and you can skip down to the current November employment report below.

For example, the Federal Reserve Bank of Boston found that overall hiring was "modest, partly because of short supplies of labor, and wage increases were becoming somewhat more widespread. ...  At staffing firms, bill rates and pay rates have reportedly begun to rise at a faster pace, and clients were offering more generous signing bonuses, paid leave, and other perks to attract talent." This sentiment was echoed at the Federal Reserve Bank of Minneapolis that report, "A Minneapolis-St. Paul staffing contact said his firm was seeing "a ton of wage pressure this year," with increases of 5 percent to 7 percent."

This is just a sample of the kind of information contained in our summation that is free and can be downloaded from here. In addition, you will be able to sign up for a notification when the next report is released.

We've again put together a free, ten-page report pulling out information that we feel is very relevant to staffing industry executives. It's heavy on data in tables and graphics but not words -- that way we can pack in a lot information in those ten pages.

For example, there were 711,900 transportation and material moving jobs in 2016, or about one in every four THS jobs, and by 2026 they are expected to increase 11.6 percent, which is faster than overall THS growth. Although only 6.9 percent of all Transportation and material moving jobs were within THS in 2016, this is expected to rise to 7.3 percent by 2026. And by drilling down deeper into the occupation grouping, we learn that 20.2 percent of a specific job with that grouping -- packers and packagers -- will be employed by THS by 2026.

The report, which is free, can be downloaded from here. In addition, you may find the previous report, which covered the 2014 to 2024 time period, enlightening how the landscape has changed in two years; it can be downloaded here.

The percent of part-time employment entered the recession at around 17 percent and understandably rose during the recession to a high of about 20 percent relatively soon after the recession ended. Take note that jobs and employment are officially a lagging indicator so it makes perfect sense that the trend didn't peak as well as change direction until after the recession was declared over and the economy entered an expansionary period. 

But, it has yet to return to pre- recessionary levels and it may never. The economy has and will continue to go under fundamental shifts as the nature of employment and jobs changes in this new economy.

Twenty years ago, the U.S. Bureau of Labor Statistics attempted to measure the so-called contingent workforce for the first time (economist Audrey Freeman is credited with first coining the the term "contingent work" in about ten years prior in 1985, but we digress).

Today people have more and more alternatives to earn a good living other than having a job or being employed. The current measures and tracking of employment and jobs may be inadequate to capture these changes -- think Uber; think Airbnb; think eBay and Amazon. Some long-standing beliefs will change -- after all, the Cubs finally won!

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A closing comment ...

We don't think we need to remind everyone to vote. While talking to some friends recently, I mentioned that 'our national nightmare will soon be over.' Someone else commented, "No, regardless of the result, it's probably just beginning." I stand corrected.

Regional economic conditions update ...

How's the economy doing in your markets?

Two days ago, on Wednesday, December 2, the Federal Reserve Board released its collection of comments from businesses and other contacts from around the country. The latest Beige Book covers the period between October 6 and November 20 and the comments from a wide variety of sources and markets tell a story of a varied economy and labor market throughout the country. As you may be aware, we pull out passages relevant to a large majority of our readers -- ostensibly recruitment, staffing, employment services, IT services sectors, and the sectors they service -- to help our readers gauge business activity meaningful to their business.

For example, in the Federal Reserve Bank of Boston's service area, which includes CT, MA, ME, NH, RI & VT, the staffing sector is apparently doing very well: "Staffing contacts report continued growth in the New England region, with year-over-year revenue increases in the 10 percent to 25 percent range." The tight labor supply created an environment in which "number of companies are relying on staffing firms for recruitment. ... The rate of temporary-to-permanent job conversion remains strong."  The Beige book even goes as far as to list a number of occupations for which the shortage is more acute. These generally upbeat comments about the staffing sector were not limited to this part of the country, but there were exceptions.

In contrast, the Federal Reserve Bank of Chicago, which covers IA, IL, IN, MI & WI, "Staffing firms reported slower activity, with one firm noting a widespread decline in orders across industries and skill types." However, regarding general labor trends, "labor demand continued to be strongest for skilled workers, especially in many professional and technical occupations, sales, and skilled manufacturing and building trades." And from the Federal Reserve Bank of Minneapolis, which covers MI, MN, MT, ND, SD & WI, "Across the District, numerous sectors reported difficulty finding workers. A staffing services executive in southeastern Minnesota noted that labor tightness had shifted from skilled labor to general labor."

It is still looking likely that the Fed's highly anticipated rate increase will come to pass when the Federal Open Market Committee (FOMC) meets in about ten days. Janet Yellen, speaking at the Economic Club of Washington in Washington, D.C., earlier the same day that the December Beige Book said, "... Were the FOMC to delay the start of policy normalization for too long, we would likely end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of our goals. Such an abrupt tightening would risk disrupting financial markets and perhaps even inadvertently push the economy into recession. Moreover, holding the federal funds rate at its current level for too long could also encourage excessive risk-taking and thus undermine financial stability."

When is it coming? part trois

For the previous two months in this space we discussed the next recession. Last month we concluded by mentioning that one of our editorial review board member mentioned "'the when [the next recession will occur] is not as important as to the why.' We will hold that discussion for another time." Three hypotheses -- and the first two don't count -- what we are going to discuss this month.

Just as the basis of the current recovery / expansion cycle can be found the past recession, the genesis of the next recession may be found in the current expansion. There are two basic types of recessions. One is driven by internal weakness or fundamental internal changes and the other is the opposite -- driven by outside forces not fundamentally related to the structure or capacity of the economy.
 
The immediate previous 2007-2009 recession / financial crisis is an example of the former. In the early 2000s, baby boomers started saving for retirement so housing demand waned and was off considerably. Housing sales, including speculative purchases, peaked in early 2005. But the economy did not change gears because residential construction ignored the sales declines and continued to build new homes.  By 2007, two new homes were being built for every new household formed. The mortgage industry created and tried new products ('liar or scary loans' and zero-down mortgages) to entice buyers and shore up the housing market. But the buyers simply weren't there and the market finally collapsed when the inventory of unsold homes became unsustainable. [FYI, we saw this coming back in 2005. Click here to see our Financial Times Letter to the Editor published on August 11, 2005 -- ed.] Eventually these practices (supported by public policy, but we digress) put the entire financial sector at risk and the pain trickled down into the rest of the economy. The recovery required major restructuring of the financial sector and a shift in the economy away from its dependence on construction activity. Let's call this type of recession endogenous.

The other type of recession is the result from some outside force but not directly related to the internal structure or capacities of the economy. The technical term for this version is an exogenous recession. The economy gets sucker punched to the gut and the wind knocked out of it, pulls itself back up through minor adjustments, and then continues on along the same path as before. The 1973 Oil Shock recession has, literally, become the textbook example of an exogenous recession. Should the current slowdown in China, which we mentioned last month in this space, lead to a recession here, it would fit this category.

 
Since an endogenous recession is caused by internal weaknesses or fundamental internal shifts, the engines that drive the recovery will be different from those going into the recession. Think of an endogenous recession as a car changing gears.  Until the new gearing is set, the car slows down depending only on momentum.   

Exogenous recessions are, by definition, less predictable.  After all, it’s called a “sucker punch” because the victim never sees it coming. But, on the other hand, an exogenous recession does not require significant internal restructuring.  A business can often just hunker down and wait for its current markets to recover from an exogenous recession.  However you may need to go back to the drawing board to prepare for a recovery that follows an endogenous recession. 

Today, there are signs of both types of recessions in the offing, but we tend to see more exogenous than endogenous factors developing. So whether it will be an exogenous recession your business should be able weather and wait out or an endogenous one that requires serious reassessment of your market positions, client bases, and service offerings, you should be prepared for both.

When is it coming? part deux

Last month in this space we discussed the next recession. Have no doubt that there will be one -- there's no issue as to the "if," but opinions abound as to the "when." As one of the members of our editorial advisory board mentioned to us, "Economists are no better than anyone else at guessing the timing of business cycles ... well, maybe a little better -- but not much."  This month we will expand on the current state of the employment economy and will look for further signs if a recession is somewhere on the horizon.

Here is our interpretation of a Beveridge Curve, which we have discussed several times in this space (April 2012, November 2013, and most recently in February 2015). We keep coming back to it because rarely do we see such symmetric relationships between data for different metrics. And we like symmetry.

About a year prior to the last recession, the two data series started to diverge -- the unemployment rate started to inch up as the job vacancy rate started to sink and this movement accelerated throughout the recession. Move forward to the current economic cycle, the two series continue to converge -- the job vacancy rate continues to rise as the unemployment rate declines. If the pattern holds true for the next recession as it unfolded for the last recession, then the next recession is likely no sooner than one year away -- and very well could be longer.

Unfortunately, the job vacancy rate data series only began in December 2000, so our premise of how these two data series could be predictors to an economic slowdown or recession is quite limited. Although the two data series appear to be approaching a point when the two trend lines cross -- and hence begin to diverge instead of continuing to converge -- that could very well be a "red herring" because each data series would not be changing directions as they did prior to and during the last recession.

However, if the two data series should cross that could be an indication of stronger wage inflation as it would mean that there is a higher rate of job vacancies than unemployed people available to fill them. Actually, it would likely mean that there are clearly not enough people with the proper skills to fill the existing job vacancies and that would indeed drive up wages and hence inflation would become more severe.

But there are at least two other "howevers" regarding how tight the labor market actually is today with unemployment at a level that many once considered "full employment." First, the last time the unemployment rate was 5.0 percent was in early 2008 and the labor force participation rate was more than 66.0 percent; in September 2015, the unemployment rate was 5.1 percent, the labor force participation rate was 62.4 percent, and this could suggest a labor market with a lot more slack today and hence not a lot of pressure building for higher wages.  Second, the growing use of telework and outsourcing mean less regionally restrictive labor markets muting some wage increases. For example, if a skill shortage starts to significantly drive up wages in a certain market, today some employers can hire workers who may be available in a different geographic market without such a shortage via telework and without necessarily increasing their wages.

BTW, our editorial review board member went on to explain that "the when [the next recession will occur] is not as important as to the why." We will hold that discussion for another time.

When is it coming?

We ended last month's analysis / commentary musing about the timing for the next recession saying it could be soon or as long as five years away. Let's start off that we have no crystal ball and for every argument on one side of the "when?" debate, there are equal and compelling evidence for the other.

Arguments that a recession is not on the immediate horizon is that 1) the recovery has been weak, so it still has some room to run 2) the labor market remains quite strong, and 3) the recovery has been handling a very messy geo-political situation quite well and for some time (think Ukraine, the Middle East, Greek debt, etc., etc., etc.).  U.S. GDP has been strong, new jobless claims remain at post-crisis lows, spending on R&D is at a peak (which bodes well for the future), and industrial capacity is below levels leading to inflation. In addition, recessions usually do not happen until about five years after the Fed starts to tighten the money supply, which has not even begun yet so (although it could be soon). And despite the developments in China, U.S. exports to China are less than 1.0 percent of U.S. GDP.

Arguments for a recession starting sooner rather than later is the Chinese economy is likely worse than China says it is and it's apparent coming apart at the seams and could cascade through other many major economies that are important U.S. trading partners. Although just about everyone knows not to trust the data coming out of China, countries that export into China are reporting major declines to China and since so many other countries exports are dependent upon China buying their stuff (and those exporting countries' data can be trusted), when China's imports decline, it could bring down the whole house of cards. The huge monetary overhang in many economies could cause inflation (e.g. When the Soviet Union was dissolved in 1990/1991 that left an excess of money in circulation, the monetary overhand lead to hyperinflation). Global growth is weak as China, most of Europe, and Japan are in the dumper.

The weak equity markets may begin to diminish the wealth effect and reduce spending, especially domestically and that will slow things down. Apparently Fed policy has been to keep the markets high to encourage consumer spending, which is two-thirds of GDP.

So it may not be a case of believing if the glass is half empty or half full, but rather if products and services are being added fast enough to a leaking glass to maintain an acceptable level.

Earlier this week, the Fed published its latest Beige Book, which is a roundup of regional economic and employment developments. Although it is 18,000 words, we pull out staffing and IT sectors, developments in major industries that drive the staffing industry, as well as general employment trends. It's interesting to see that in some areas of the country staffing companies report "robust growth" while in other areas, there is weakness. One fairly consistent trend in many parts of the country is that 'temporary-to-permanent' activities have picked up in the past few weeks and occasionally at the detriment of the temporary side of the business. Although shortages for some positions -- mainly, but not exclusively, high skill jobs -- are driving up some wages, overall, wages are relatively stable. If you want to read out summation, which includes a link to the full report, click here.

Changes in wages and salaries ...

Last week, Q2 2015 data regarding employment costs were released and it caused quite a stir because at only a 0.2 percent rise, it was the smallest quarterly gain since 1982. This led some to speculate that with wage pressure and inflation nowhere to be seen, the Fed will be in no rush to raise interest rates.

Regardless of how the employment cost index (ECI) may or may not affect Fed monetary policy, the latest ECI data do provide some interesting strategic information that may be used for adjusting pricing strategies for staffing companies.

Buried deeper in the ECI data are how wages changed for different groups.

(Note: this accompanying chart shows only wage and salary information and on an unadjusted bases whereas the ECI that rose 0.2 percent in Q2 2015 that was widely reported is for total employment costs that includes benefits and is seasonally adjusted. Seasonally adjusted data are not available at the level of detail that are presented in the accompanying chart. The y-axis is the Index, which measures wage change over time; December 2005 = 100)

As seen in the chart, wages and salaries have tended to move in unison for the past two years, but some categories appear to break with that trend in Q2 2015.

Wages for all workers, as well as those in the service providing sector each rose 0.3 percent on a seasonally unadjusted basis. But wages for workers in the goods providing sector (a.k.a. blue collar workers) as well as for those in office and administrative support occupations, rose 1.0 and 0.9 percent, respectively.

The greater rate of wage and salary growth for some occupations can be an indication of qualified worker shortages that is translating into higher recruitment costs for businesses and companies needing those types of workers. Or "faster than overall" growth could be that because wages were so low in the first place.

This latest ECI data seem to track well with comments published in the latest Fed Beige Book, a summary of it that pulls out remarks relevant to staffing and IT staffing and solutions companies and can be found here. When Fed researchers talked with business owners and operators around the county in late June to early July, they found that wages pressure was fairly muted to non-existent except for a variety of some occupations in different areas of the country.

The Fed can see rising wages as one signal to start tightening monetary policy. In addition, some also believe that when average hourly earnings start to rise, the countdown starts to the next recession. Some say one year and others say five years.

The current expansion started June 2009, which makes it 74 months in duration. The expansion leading up to the start of the past recession was, coincidentally, 73 months; the expansion before that was 120 months long and the one prior to that was a stretch of 92 months. We are not saying that the economy is overdue for a recession nor are we saying that the current expansion still has five or more years to run.

If we don't do it, who will?

And now just a little self-promotion and a shout out to none other than Barry Ritholtz, author, wealth manager, as well as producer of one of the more widely followed financial and economic blogs The Big Picture, for reTweeting one of my Tweets last week  ... And although I didn't know it at the time, Barry was one of the few economists who saw the housing implosive in advance. Another one was moi, as evidenced by our letter in the Financial Times published ten years ago this month comparing the then red-hot housing market to a Ponzi scheme that was doomed to failure because of a Nobel Prize winning work on asymmetrical information as well how that economic theory could be used to explain the IT bubble as well as the benefits that staffing companies bring to the table. Yup, you read that right -- a Nobel Prize winning theory explains the  benefits of the staffing industry.

More on staffing industry disruptions ...

Another potential disruption to the staffing industry ...

There is little argument that the technology and the internet has disrupted many sectors and industries while simultaneously creating new ones. For example, peer-peer lending is beginning to disrupt the predominate banking model. For the staffing industry, more specifically temporary help services, technology and the internet have generally been a big plus especially in terms of efficiencies and reach. We could write a book's worth of material explaining how technology has helped the entire human capital universe, but if you don't already know this, you could be in the wrong business.

Although some technologies have slowly chipped away at parts of temporary help services, the sector has done a good job rising to the challenge and even capitalize on new and merging technologies as well as creating new business models and new services to meet some of those changes. (The sector has also benefited by servicing those technologies with qualified professionals as well as providing direct services and solutions, but we digress.)

Just as job boards / employment web sites rewrote the business model for the print media's revenue machine of classified ads, a new type of business model may be emerging that could effectively eliminate one of the temporary help services major operations on both sides of the staffing formula (candidates and client companies).

Workpop, currently active only in Los Angeles, specializes in matching hourly and part-time workers and employers. And they do it for free -- both for workers and employers. So how do they plan to make their money? As a start-up, they are still working that out but according to their website they "intend to offer premium services that employer and candidates have the option to pay for."  According to a WSJ blog post, these may include on-boarding of new hires, handling the scheduling of shifts, and probably some background check tools. That all pretty much sounds like many of the selling points that temporary help services salespeople use to sell their services. A major difference is that Workpop does not appear to have any eyes on becoming the employer as the temporary help services industry has vigorously defended for its members. Regardless, this start-up looks to be chipping away at the business model of temporary help services.

We addressed this subject earlier this year informing you of a cover story in The Economist magazine about startups that are building systems that match jobs with independent contractors on the fly.

And it's not just the temporary help services portion of the staffing industry that could be dismantled. PEOs are facing Zenefits, another California-based start-up with a recent valuation of $4.5B, gives away its cloud-based HR software with its payday coming when its product is used to buy health insurance, choose a payroll provider, or other HR-related product or service.

It's no great secret that staffing companies, either internally or via a vendor, have automated many of their processes and even some key competencies. But the danger is that non-staffing companies can develop applications to provide those same services very quickly possibly via an Internet-based business practice of "sunrise product development" in which product development times can be slashed with networks of collaborators passing the work off to another developer eight time zones away, so three days work can be done in any single 24-hour period.

What do you think? Are these developments really a threat to the staffing industry and how can staffing companies address it? Let us know what you think and we'll share your comments (anonymously, if you want) in a future post.

The Fed doesn't appear to be too concerned ... why?

And thank you ...

Since mid-2006, you have been providing our monthly employment report with an analysis of a specific subject to you free of charge. No, we are not going to start charging for it, but in return for our last eight-plus years of sending this gratis report, we would like you to complete a brief survey (four questions, and that includes an optional open comment box).

The reason for this development is because of a total screw-up by our web hosting company that took a week for them to rectify after they deleted our website (not to mention, the time and effort for us to deal with the situation). Not knowing anything for a number of days if the problem would even be addressed or fixed, we secured another URL and new web hosting company. We apologize to anyone who were not able to see our latest summation of the Federal Reserve's Beige Book, which presented some anecdotal reasons for the January and February decline for temporary help services.

With that said, we would like your feedback about a possible new URL as well as a new website. Please keep in mind that the new website is not quite finalized (let's just say it's "in beta"), but most of the bits and pieces are there and should be working but it sill needs some refinement. Before you complete the survey please make sure to visit the potential new website design at test.SteinbergEmploymentResearch.com and you may also want to revisit our current website at www.brucesteinberg.net.

We keep coming back to the Beveridge Curve ... and is a recession lurking out there?

In April 2012 we first examined a Beveridge Curve, which looks at excess demand in a market place, and tried to relate it to the employment economy. Some intriguing trends emerged from that initial examination, so we looked at it again in November 2013 and concluded at the time that the Curve, "suggests that the unemployment rate still has some room to decline going into the new year [2014]." Since that was more than a year ago, we thought it time to see what the Curve could be telling us now.

Obviously, we still see how severe the recession had been with the unemployment rate rising as the number of job vacancies declined. Currently, the post-recession trend of a declining unemployment rate and a rising job vacancy rate continues and this is a good thing. The data do not suggest that this trend will change in the near-term future. [Incidentally, there is no harm should the two trendlines cross -- it's just a statistical convenience that they use the same scale.]

Likewise for the relationship between the unemployment rate and changes in private-sector jobs. The rate of growth for private-sector jobs has remained fairly stable after relatively quickly rising immediately after the recession. Of course, many would like to be the growth rate be greater now, but it is firmly in positive territory and complaints about the recovery not generating as many jobs as it should are nothing new.

But, when looking at the charts -- specifically, the space between the end of the 2001 recession and the beginning of the most recent one, the hairs on the back of our neck stood at attention. Many people focus on the length of the recession and not the expansion, which is the period between the end of a recession an the start of the next one.

So, where are we now in the expansion relative to past cycles? From 1945 to 2009 when the most recent recession ended, there have been 11 economic cycles and the expansion has lasted an average of 58.4 months. Limiting the period a bit from 1970 to 2009, there have been seven cycles with an average expansion of 71.0 months. Since, June 2009, when the last recession ended and, by definition, the expansion started, it has now been 68 months.

However, there is a school of thought that the two recessions in the early 1980s, sometimes referred to as a "double-dipper," were not really two recessions, but a single entity. Eliminate the 12-month expansion of 1982, and the average expansion since 1970 rises to 79.0 months.

Does this mean that we are overdue for a recession? Not necessarily as there are no hard and fast rules. The 'so-called' weakness of the current recovery may actually help extend it given the fairly large degree of resource reallocation as a result of the recession. Since 1945, there have been seven expansions shorter and four longer in duration than the current one. If the counter starts with the 1970 expansion, there have been only three shorter and four longer.

Food for thought (locally grown, gluten free, non-GMO, free-range, and without hormones, of course).

Looking at new job creation and the unemployment rate every month is certainly a good way to get a bead on what is happening in the labor market and the employment economy. But, if two labor market indicators are good, what about two dozen? Economists at the Federal Reserve Bank of Kansas City recently developed two new indicators that they have labeled, appropriately enough, Labor Market Condition Indicators, or LMCI.

The LMCI consolidates data from 24 labor market variables.

The researchers who developed the LMCI do provide technical information about how it is constructed -- e.g. "a principal component analysis on the 24 variables and examine the eigenvalues of the covariance matrix. ..." -- but we think our readers would be more interested in what it shows and tells.

And not to get too technical ourselves, we think it's sufficient to explain that a positive value signifies labor market conditions are above its long-run average and a negative value indicates conditions below.

The LMCI Level of Activity indicator has improved significantly during the recovery. But it is still at a level well below pre-recessionary levels.

The LMCI Momentum indicator has been well above average for some time; it started to improve as the recession was in its last stage and has been in positive territory since 2010.

According to the researchers, "based on the historical relationship between the LMCI and the unemployment rate, recent declines in the unemployment rate have overstated improvements in labor market conditions." Additionally, "The increase in the unemployment rate during the Great Recession also overstated the deterioration in labor market conditions as measured by the LMCI." 

In other words, the employment / jobs economy isn't doing as good nowadays as the decline in the unemployment rate may indicate but the employment economy also wasn't as bad during the recession either.

We have added the LMCI to our constantly updated list of major employment as well as other economic indicators, all of which can be seen here or here for the mobile version.

Follow-up from last month ...

Referencing a recent cover story from The Economist magazine, last month in this space we addressed how technology is changing how businesses are sourcing workers and how the nature of careers are changing.

Here's a TED talk from more than two years ago that takes those concepts further. Watch, listen, and learn.

Almost 22 years ago, Time magazine's had a cover story entitled "The Temping of America" that was critical of America's employers growing use of temporary workers. Some in the staffing industry saw it as an out-and-out assault on temporary help services, some saw the article as an opportunity to show how one onerous employer regulations had become for business and how temporary help services could help them, and others used it to demonstrate how temporary help services help workers provide jobs and provide opportunities.

In the interim period, the staffing industry has generally flourished (sans a recession or slowdown or two).

This week, The Economist magazine published a cover story entitled "Workers on tap" that every staffing executive should read and read carefully. It makes a strong case that technology "will reshape the nature of companies and the structure of careers."

Some will dismiss this threat for several reasons. 'That article is about freelancers, freelancers have been around for a long time and this doesn't apply to staffing companies since we are the employer.' In addition, many of the applications discussed in the story are in areas where staffing never operated in anyway and technology has actually opened up more opportunities for staffing services.

But think Uber. And if you don't know why we just said "think Uber," you're going to be waiting for a taxi that isn't going to come for you. Much of the technology discussed in the article is changing the on-demand labor market, which is a significant portion of the staffing industry, to such a degree that those changes could totally disenfranchise that major part of the staffing sector.

The Economist article is here and if that link is gone by the time you are reading this, try this one.

This development may not significantly affect large users of temporary help services since they fully understand the value of the employee / employer relationship protection from using a staffing services (and almost by definition, large staffing companies as well as VMS & RPO).

It's the small and medium sized enterprises that will be most impacted. London may not be burning today, but the conditions are right for a firestorm that could change the face of the staffing industry -- and possibly other employment services including job boards -- in a very short time.

If you have any thoughts about this -- or other subjects you would like us to address this year -- let us know.

Last Beige Book of the year sees signs of wage growth ...

The story with wage growth (or lack thereof) ...

The Fed made an expected move last week when it ended its bond-buying program because of the strengthen economy and resulting in renewed speculations about rising interest rates. But discussions among monetary policy makers and Fed-watchers persist about the apparent lack of wage growth in the current economy. With so many other employment metrics showing an improving employment situation, the question remains why is the labor market not tighter? The answer likely lies in wage growth (or the lack thereof). There are myriad reasons why this metric is part of the bigger picture so it's important to know why and what has been occurring with it.

Many other employment market indicators (unemployment rate, new job creation, insured unemployment, growth of the labor force, which we have previously examined in detail) are showing an economy that is expanding, but wages, although increasing, are apparently rising below what the Fed would like to see. Officially, the Fed may not have an official "target" for wage growth as it does for inflation at 2 percent. "Inflation running persistently below its objective could pose risks to economic performance," according to an official Fed transcript from a June news conference. The Fed's current inflation projections are 1.5 to 1.7 percent in 2014 and 1.6 to 2.0 percent in 2016 [yes, 2016 -- ed.].

Although it is generally understood the changes in wages  are tracked through the Employment Cost Index (which also tracks total compensation, which includes benefit costs), it is only released quarterly.

Therefore, we have used another data set that is available monthly. Even though wages are rising about 2 percent (also what the ECI shows) on a seasonally adjusted basis -- as this chart shows -- the Fed considers a 2 percent increase as "essentially flat rather than rising, and real wage growth really has not been rising in line with productivity."

And the change on the average weekly pay shows wage growth that has been fairly stagnant for some time after dropping during the recession and recovering in the early stages of the recovery. Wage growth has clearly not returned to the pre-recessionary level.

When wages rise more rapidly than inflation, people experience a real increase in take-home pay. And, within limits, when that occurs across the labor market, it could be a sign of a tighter labor market. Wage growth at a greater rate of inflation should also translate into greater buying power among workers which, in turn, could  encourage increases in consumer spending, which is growing at a healthy pace now. However, the up tick in consumer spending now not necessarily because of higher wages but possibility because a) consumers have improved their personal balance sheets and eliminated the debt overhang from the last recession and b) low interest rates do not provide any incentives for savings.

Just for grins, let's take a look at two sectors relevant to the staffing industry -- the major sector of manufacturing and computer systems design that is dominated by technology. Unfortunately, seasonally adjusted data are not readily available at this level. In order to partially compensate for the "static" in the not seasonally adjusted series, we've also presented the six-month moving average trend lines and made them prominent.

As the six-month moving average shows, nominal wage increases in manufacturing have not changed much after rising briefly after the recession ended. Perhaps that rise was a strategy to attract workers as the recession left the sector short of enough staff as the manufacturing sector picked up post-recession.

But, the six-month moving average for the computer systems design and related services sector tell a different story. Pre-recession wages in this sector were growing rapidly year-on-year, but plummeted during the recession likely as businesses that used the services of this sector stopped or put IT projects on hold. And since that drop, wage growth -- as a manifestation of demand for professionals with those skills in the computer systems and design and related services sector -- has not recovered to the pre-recessionary trend. However, this phenomena may be due to an increase of outsourcing so labor shortages for these skill sets may very well exist, but are showing up in other sectors.

Last month in this space, we discussed the Federal Reserve Board's views about labor market slack and we presented several labor market indicators that the Fed looks at every month. (FYI, we also track several economic and labor market indicators, which can be found here.)

This month we'll address another measurement -- unemployment insurance claims, which is a widely-followed employment and economic indicator. Just as there are limitations to the unemployment rate reported by the Department of Labor's Bureau of Labor Statistics every month, the UI information reported by the Department of Labor's Employment and Training Administration also has its limitations. But, each fills in a piece of the labor market picture to help present a more complete evaluation of the state of the labor market.

There are several reasons why UI information is important when evaluating the state of the labor economy. Because the unemployment rate as reported by the Bureau of Labor Statistics has its limitations, another set of data about unemployment trends brought to the table can be very useful. Also, the UI information can assist in forecasting when wages may be rising. Almost by definition, declining UI claims mean that the labor market is tightening so, in order to attract and / or retain workers, employers need to raise wages.

Returning to the subject at hand -- and as we see in the chart to the right -- the widely reported initials claims for unemployment insurance (IC) have recently fallen to below 300,000 and are at pre-recessionary levels.

In addition, the lesser-reported rate of insured unemployment (IUR) has also fallen from recessionary levels and is also at a point consistent with an economy in an expansion period.

You've undoubtedly have heard that wages have been fairly stagnant throughout the recovery and that situation may be changing soon. As we see in the accompanying chart, UI claims have essentially returned to pre-recessionary levels and wage inflation could be just around the corner, which is just one more reason that many economists have opined that interest rates will be rising as the economy may be healthy enough to support such action.

And just to tickle your brain, one member of our editorial review committee pointed out, maybe with a hint of irony, that "UI claims are highest when staffing companies are doing worst in a recession, so now things must be good." That got us to thinking, so we came up with another chart comparing the IUR and the job market share of temporary help services. No great surprise that there is an inverse relation. (Technical note: the exact shape of the IUR trend line are not the same in both charts because the IUR data are for the corresponding week of the month in the chart comparing it to THS market share; all the data in the top Insured Unemployment chart are weekly.)

There's been a lot of talk about the 'slack in the labor markets,' so we thought we try and show it to you.  In case you missed it, the labor market was the subject of the Fed's recent summit in Jackson Hole, Wyoming, where Fed Chair Yellen said, "Estimates of slack necessitate difficult judgments about the magnitudes of the cyclical and structural influences affecting labor market variables, including labor force participation, the extent of part-time employment for economic reasons, and labor market flows, such as the pace of hires and quits."

There's a lot of information in these four sets of charts -- much more than we have space here to elaborate on. Depending upon the indicator, the optimal relative position of the different colored dots varies. You will just have to work it out yourself.

First, a bit of a technical note. The National Bureau of Economic Research, which determines the business cycles, pegged December 2007 as a peak, which also means that's the month that the recession began. And they said that June 2009 was a trough, which means that's the month the recession ended and the recovery started.

Since a single month's datum for any measurement can be a little misleading, we present quarterly or other three-month figures of the data. Therefore, on all of these charts, the blue dots (when the recession started) are Q4 2007 data or December 2007, the green dots (when the recession ended and the recovery started) are Q2 2009 or June 2009 data, and the brownish dots (labeled as "current") are for Q2 2014 or June 2014.

Therefore, since the blue dots represent labor market measurements when the economy was at a peak, the space between them and the brownish dots could be said to be the "slack"  that needs to be tighten up. When the brownish dots get closer to the blue dots -- and further away from the green dots -- then the labor market is tighter, perhaps too tight since the blue dots represent the indicators as the recession started. The green dots are pretty much the recession at its lowest level although some indicators will continue to decline for a short time in the early stage of a recovery.

For example, in the top chart in the first set of charts, the current unemployment rate (the brownish dot) has nicely moved away from the where it was at the end of the recession (the green dot) and is approaching what was a time of a very tight labor market (the blue dot). There's some, but not too much, slack for this labor market indicator.

But, one measurement cannot describe the entire labor market.

Let's look at Quits, which is when people voluntary leave their jobs. This is seen as a good development because it is a manifestation of a strong job market -- someone leaves a job because they are confident they will get or be getting another job, which is likely a better job. Notice how this indicator was much further along when the economy peaked (the blue dot) than it is currently (the brownish dot). But it has improved as seen by the current reading being away from the place it was at the end of the recession (the green dot). Clearly an improvement for this indicator has taken place, but there is still some room for more.

[Technical explanation: the "three-month percent change" and "three-month net change" is the change from three months prior; for these data, it's the change from the last month of the previous quarter.]

When the recession started, the three-month net change in December 2007 for total nonfarm jobs was 297,000. When the trough was reached in June 2009, it was negative 1.5 million. In June 2014, it was 831,000. As the economy peaked in December 2007, job growth slowed down and today is much strong then at that time.

At the bottom of our Economic Indicators webpage, we provide a brief overview of most of these labor market indicators that may assist you in interpreting all the information presented in these three sets of charts. BTW, we are currently transitioning the format and appearance of our economic indicators, starting with this month's jobs and employment data. Check it out.

We've seen it before. When an administration starts to take credit for an improving employment situation and job growth, others start talking about the poor quality of those new jobs and the employment status of the workforce.

A few weeks ago, The Wall Street Journal (July 14, 2014) published an opinion piece from none other than Mortimer Zuckerman, chairman and editor-in-chief of U.S. New & World Report. Entitled "The Full-Time Scandal of Part-Time America," he drew readers in by starting off with one fact -- 268,000 jobs were created in June and, for want of a better term, an 'almost fact' -- "Full-time jobs last month plunged by 523,000 ... . What has increased are part-time jobs. They soared by about 800,000 ... ."

The reason we call that second statement an "almost fact" is that by referring to the part-time numbers as "jobs" and not the more correct  term of "employment," he created a direct connection between his two statements where, technically speaking, a connection should not be made. The 268,000 new job number came from the establishment survey while the decline of 523,000 full-timers came from the household survey. According to the U.S. Bureau of Labor Statistics, "The numerous and methodological difference between the household and establishment surveys result in important distinctions ... ." Mr. Zuckerman clearly did not make any distinctions in his piece. Any labor market observer worth his or her salt knows this. No soup for you! (What? You're surprised we are fans of Seinfeld?)

Granted, it may look like we are being overly picky, so let's look at the bigger picture and trend occurring with full-time and part-time employment.

In both charts, the top edge of the bars is total employment that has been inching upward since the end of the recession. But is part-time employment pushing that edge up as Mr. Zuckerman implies? Actually, no.

The longer term trend (one or two months do not make a trend) is that full-time employment is driving overall employment growth. The top chart shows that the difference between full and part-time employment has been fairly consistently rising since after the recession, with a few hiccups along the way. The bottom chart slices the same data a different way and again -- with several exceptions along the way -- the part-timers' portion of total employment has been declining since the recession ended. True, June showed a rise in part-time and a drop in full-time, but that type of movement is not really that unusual on an isolated basis.

As the next election cycle heats up, we will be hearing more about this issue. And because part-timers are often referred to as temporary workers, this increased scrutiny could cause headaches for the image of the staffing industry, specifically, temporary help services, as it has in the past.

And least you think that we are picking on just two little items in Mr. Zuckerman's piece, he also mentioned  that "Last month [June 2014] involuntary part-timer swelled to 7.5 million, compared to 4.4 million in 2007." Well, the recession didn't start until December 2007, so the low number of part-timers are pretty much from a peak in the economic cycle so naturally part-time employment would be at a low level. Instead of going back seven years to find a datum point to support his misguided opinion, he failed to mention that only a year ago, in June 2013, there were 8.2 million involuntary part-timers. Still, no soup for you Mr. Zuckerman!

The quarterly GDP (gross domestic product, or the sum of all products and services, minus imports) actually is released three times because the data used to produce it drip out over time so the Department of Commerce / Bureau of Economic Analysis updates it after it is first released. FYI, the first release is called "advance", the next is the "second", and the third is called, you guessed it, the "third" estimate (side note: the third release used to be called "final" until someone pointed out that it is subject to subsequent revisions, but we digress).

The third estimate of Q1 2014 GDP that was released last week came in at -2.9 percent, which was quite shock from the second estimate of -1.0 percent, which itself was a bit of a jolt after the advance estimate was a positive 0.1 percent. The downward revision was mainly due to downward revisions in consumer spending and exports and an upward revision in imports. Most attributed the dismal performance in Q1 GDP to the harsh winter that suppressed economic activity. Recall that the jobs numbers were also down at the time, so this explanation carries a degree of validity.

But, did you notice that the politicians remained fairly quiet about this? One would think that at least one political party would shout from the highest rooftops that this is clear proof that the current administration's economic policies are failing ... but they didn't. Either they didn't have an understanding of what the drop in GDP meant and missed an opportunity to beat-up on the administration, or they did and accepted it was an anomaly caused by the bad weather and didn't want to get drawn into a losing argument. However, unless something really remarkable occurs, GDP for 2014 likely will be lower than previously predicted.

In early June and before the third estimate of Q1 2014 GDP was released, the consensus estimate was that the economy will grow around 3.5 percent in Q2 2014. Afterwards, some economists adjusted their predictions for Q2 2014 GDP upwards under the logic that the economy will, at least partially, make up for the bad winter weather that kept consumers out of stores.

This got us wondering how the economy was performing on a more granular level since this GDP statistic is of the entire country.

Although state-by-state GDP is only produced on an annual basis, we felt looking at it for the past couple of years would be interesting. Only six states, as indicated in bold, outperformed national GDP growth in 2011, 2012, and 2013. [note: clicking on the chart will open it in a new browser window where you can make it bigger as well as download to your device.]

Notice how some state's GDP fortunes radically change from year to year. Clearly, some states are dominated by a sector or two that drives that state's economy. Wyoming is a good example. Although its actual GDP is the second lowest in terms of dollars (these data are not presented), it was the second fastest growing state in terms of 2013 GDP and this growth can mainly be attributed to mining. It looks like the oil, gas, and mining sector (ND, WY, TX, OK, UT, and others) along with tech (CA and WA specifically) are clearly driving the economy as the financial sector (see NY) is holding it back ... and this clearly impacts the staffing sector's performance.

Then we decided to see how the states are expected to grow in the next six months; that's the table on the right.

We heard from Susan Houseman of W.E. Upjohn Institute for Employment Research pointing out that manufacturing trends are commonly misinterpreted because manufacturing output and productivity measurements are being skewed by relatively small sub-sectors -- computer and semiconductor manufacturing. Without going into detail (we've read through two research papers), the gains in overall manufacturing productivity are grossly inflated because of the way productivity is measured. In brief, the measurement methodology captures quality improvements. And the vast improvements in computers and semiconductors, although relatively small sectors, have created a situation in which overall manufacturing productivity and output growth is dominated by them -- so much so that, when adjusting for computer and semiconductor manufacturing, the authors conclude that the nation's overall manufacturing real GDP has been weak or negative since 2000.

It may appear wrong to take out a specific sector and then conclude that the manufacturing economy is not doing well, but Houseman points to us in an email that, "The rest of manufacturing accounts for roughly 90% of value added and employment in the sector and, on balance, is not doing well.  But few people know that one small industry is driving the apparent robust growth." She suggests that the federal statistics continue publishing the current full manufacturing series, but also produce a sub-series without the IT sectors.

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The question remains whether the manufacturing sector is experiencing staffing pressures. For obviously reasons, the answer to that question is very relevant to staffing companies, but it also has further implications for the economy in general.

Some labor observers say that there is really no such thing as a worker shortage, at least in the longer term. When employers complain that they cannot find enough employees, it is more likely a result of not able (or willing) to pay a wage that will attract workers they want. Granted, for high skill jobs for which workers need specialized training, experience, and education, offering higher wages may not necessarily result in an immediate flood of qualified employees, but let's talk about the other end of the spectrum -- lower wage production jobs.

Imagine an employer who traditionally pays $19.50 an hour and is having trouble getting qualified applicants suddenly starts to offer $32.00 an hour. Of course that employer would be inundated with great applicants, but couldn't do that without raising its prices to its customers. However, the business may be able to incrementally raise wages and absorb the increase, but prices will need to increase in some point. That is inflation and those in charge of economic policy watch this balance very carefully. When prices rise, wages need to rise as well  -- although consumers may also substitute cheaper goods. The relationship between wages and prices is sort of that chicken and egg thing -- which actually comes first?

The latest edition of the Federal Reserve's Beige Book, which just came out earlier this week, includes a lot of comments about the regional trends for wages and prices throughout the country. You may want to review our summation of the Federal Reserve's latest Beige Book, which pulls out insights about the staffing sector as well as relevant sectors. It also discusses the challenges that employers in myriad sectors are experiencing finding qualified employees and the steps they are taking in attempt to address the situation, which includes providing training as well as increasing capital investments (i.e., automation) so they do not have to hire more employees and still produce more product.

Now, back to the discussion about the manufacturing economy. Since last summer, year-on-year wage growth for manufacturing (the green line) has been higher than for all private-sector jobs (the red line). It certainly is not too much of a stretch to say that manufacturers are raising wages in order to hire enough workers that they need and want.

In reality, the reason for the rise in manufacturing wages is not so simple nor singular. Manufacturing workers are bringing more skills -- and hence are worth more -- to the table that now is being produced more efficiently, which also can result in higher wages. Also note how the wage growth for the professional and business service sector has trended below overall wage growth at about the same time (actually, a few months earlier) -- possibly, there's a better applicant pool so employers are not under pressure to offer higher wages to attract solid candidates.

Then for grins, we decided to see how temporary help services wages (the brown line in the lower chart) compare. Although with much wide swings, the trendline for temporary help services generally mirrors the trendline for manufacturing wages.

Although many staffing companies continue to move into higher wage sectors ostensibly because of potentially higher profits and possibly better margins, the wage growth in manufacturing has been outperforming overall wage growth. This may indicate that those employers are raising wages possibly because they are having difficulty in finding enough good applicants. Perhaps it's a good time for temporary help services to re-work their strategic plans in order to capitalize on this development.

But, the average weekly hours worked have recovered both since the onset as well from the end of the recession. When the hours worked trend is examined, it looks as if the growth in this measurement is at the level now as if the recession never happened.

Manufacturing employers have been paying less than one hour a week in overtime for about four years now -- until March 2014. But with that less-than-one-hour-a-week in overtime has now been broached and, although we can't speak for manufacturing employers, they may now be ready to start considering adding employees.

But, this first chart presenting just jobs and average weekly hours may be misleading without looking at total hours and manufacturing output, which is shown in the lower chart. As expected, the total hours worked in manufacturing follows the same general trend as the number of jobs in the sector -- much lower than from the onset of the recession and growth since the end of the recession, and not back the the pre-recession levels. But manufacturing output is almost back to the level at the onset of the recession and is actually slightly higher (the solid, brown arrowed line in the lower chart) than from about two years prior to the start of the recession.

Therefore, manufacturers are producing more now than before the recession and with fewer employees / jobs. We heard anecdotally that during the recession businesses 're-tooled' their systems to improve efficiencies. It appears what we are seeing is the result of those efforts via productivity gains -- producing more product with fewer input (hours worked, in this case). But as we said earlier, the average work-week has steadily been climbing and with output increasing as well, it remains to be seen if manufacturers will need more employees to further increase output. What have you been hearing?

To review, unlike the unemployment rate that has some shortcomings mainly because it does not take into account people who have stopped looking for a job, the E/P is a ratio of those who have jobs to the entire working age population. Both the original blog posters (economists from the Federal Reserve Bank of New York) and unabashed liberal columnist Paul Krugman of The New York Times agreed that the aging population was driving the decline in the E/P ratio. Here's our discussion from last month, which includes links to the original blog postings.

This month we decide to see if their agreed upon conclusion was correct.  Our conclusion -- maybe not.

The top / smaller chart is the same one that we ran last month -- the E/P ratio of everyone 16 years of age and older.

This month, we broke out the E/P by age. As you can see, the E/P trend for those 55 and older (and the 65 and older subset) is different for the younger age groupings. Unlike the trend for the other age groups, the E/P for both the 55 and older as well as the 65 and older subset is higher today than at the onset of the recession.

Conversely, the E/P ratio for all the other age categories is lower today (because of production schedules, the data presented here run from January 2004 to February 2014) than at the onset of the recession (January 2008). And although it is getting close to returning to the levels of ten years ago, the E/P ratio is still lower now than it was in January 2004 for all those 16 to 54. It appears this age group is driving the decline in the E/P ratio.

The E/P ratio is higher for those 55 and older (and the 65 and older subset) today then ten years ago perhaps as those who were 55 ten years ago and now are 65 have had to return to work as their retirement financial plans were negatively affected by the recession. [Federal labor experts expect the labor force participation rate for the 55 and older cohort to rise until at least 2022 (and declining participation rates for all those 16 to 54 years old) because of increasing life expectancies, healthcare costs rising more than inflation and retirement fund returns, as well as other reasons.]

A very learned economist once told me not to base all conclusions 'upon squiggly lines in a chart.' Maybe it's time for some of those learned economists to study this subject further -- here's a line of thought to investigate: How has the increase in the E/P ratio for those 55 and older impacted the decline in the E/P ratio for the younger age groups? In other words, are the older people taking the jobs from the younger people? How's that for a contrarian point-of-view?

And the debate about the quality of the new jobs is just starting ...

As the Administration tries to change the focus of the national discourse to jobs, employment, and the economy, we felt it was timely to put them into historical perspective and examine some of the components more closely. Since the debate about  how beneficial part-time jobs are for the overall economy often bleeds into public policy discussions on temporary help services, the entire staffing industry may want to pay close attention to those discussions.

These charts show the trends in jobs and part-time employment for periods of the past administration (January 2001 to December 2008, which is in red) and the current one (January 2009 to June 2013, in blue).

In the top chart, we contrast two different measurements, which have two different methodologies that measure two different things, of the employment economy in a single chart. The solid lines are the number of jobs that companies report; the dashed lines are the number of people who says they only work part-time (that is officially defined as "persons who "usually work less than 35 hours per week").

So, tell us, how is the economy really doing?

Throughout the year, the Federal Reserve Board publishes an overview of the economy that is colloquially referred to the Beige Book, which is so-named because when it was printed in hardcopy, it had a beige-colored cover. It's an assemblage of comments from business executives -- sort of a very committed, high-powered focus group -- throughout the country collected by the Board’s 12 District banks. It provides powerful insights into how the economy and employment are unfolding on a regional as well as on sector, or industry, basis.

The full report is quite voluminous; the one published last month was almost 18,000 words and nearly 50 pages in length. As a service to our readers, we distill it down to the passages with the most relevance to staffing executives and followers as well as others who find value in the employment information we provide. After reading this report for many years it has become clear to us that the nation’s economy is not a monolith and the trends occurring in certain industries and sectors in one part of the country may be very different than the developments in other parts.

For example, contacts at staffing services in the Fed’s First District (the Federal Reserve Bank of Boston, which covers most of Connecticut, Massachusetts, Maine, New Hampshire, Rhode Island, and Vermont), “report weaker-than-expected demand in recent weeks, with billable hours generally falling towards their year-earlier levels. The dip in activity reportedly reflects a leveling off in the IT sector and downticks in temporary and permanent hiring in the light industrial and manufacturing sectors.” But they went on to say, “There is, however, renewed activity in the healthcare sector, with one contact reporting a substantial increase in demand for ambulatory nurses. In terms of labor supply, candidates with high-end skill sets, such as mechanical and electrical engineers and software developers, remain hard to find.”

In contrast, Beige Book comments from staffing services in the neighboring Second District (the Federal Reserve Bank of New York, which covers part of Connecticut, parts of New Jersey, New York, Puerto Rico, and the U.S. Virgin Islands) were much different. “Two major employment agencies report that hiring activity has been fairly robust, particularly for information technology workers. There is also reported to be fairly strong demand in fields such as auditing and compliance. Large financial firms, typically a major source of jobs in New York City, are reported to be hiring only sporadically. While the temp business remains strong, a growing number of firms are hiring full-time workers. Although qualified job candidates are said to be increasingly hard to find, most employers are still said to be holding the line on compensation, though some are becoming more negotiable.”

You can read our full summation (is that a contradiction of terms?) here. And if you want to receive notification of when the next report is released, which will out in about ten days, and we publish our summation, you can sign-up from our summation of the June Beige Book.

And now a real arcane development...

Speaking of the "Fed," the 'smart money in Washington' (now, that, most assuredly, is a contradiction of terms!) is that current vice chair Janet Yellen is at the top of the list to replace current chair Ben Bernanke. Now here's an interesting factoid. Dr. Yellen's husband is George Akerlof who, along with Michael Spence and Joseph Stiglitz, won a Nobel Prize in 2001 for their work on how asymmetrical information influences markets; in a nutshell: unequal information (one party knows much more about a product or service than another) can lead to adverse selection and ultimately the collapse of an entire market. Back in August 2005, we wrote how this theory could apply to the housing market and it will eventually collapse, which, as well all know, did (assisted by a lot of garden-variety fraud and greed). Incidentally, housing prices peaked in late 2005 to early 2006 at which point they started to decline with the bubble bursting in late 2006-early 2007.

In addition, the theory helps demonstrate some of the success of job boards by providing more labor market information to all parties involved in the recruitment and employment process. Today, the same reasoning can be used to explain the success that recruiters and employers are having using social / professional networking websites such as LinkedIn.

We bring all of this up because it certainly cannot hurt the staffing industry's interests when people in high places understand the beneficial role that employment and staffing services fulfill in the employment economy.

Temporary Help Services Reach Record High ...
 

It was bound to happen. Temporary Help Services reached a new high in terms of employment in May surpassing the previous high just more than 13 years ago in April 2000.

[Note: clicking on the chart will open it in a new browser window.]

As the chart shows, the sector has flirted with making new highs throughout much of 2006, but never surpassing that previous high of April 2000 until last month when it finally did.

But, is it really a development to celebrate? After all, temporary help services portion of all nonfarm employment -- i.e. its market share -- is lower, albeit incrementally, now than in April 2000. Why?

The world is a much different place today than 13 years ago. Jobs are quite different today than it was back then. Let's briefly -- very briefly -- explore how the nature of jobs has changed in the past 13 years.

Two sectors that were fairly important customers to many temporary help services back in 2000 were manufacturing and construction. In April 2000, those two sectors represented a total of 21.1 percent of all nonfarm employment. By 2006, they were only about 16 percent and last month those two sectors were only 13.1 percent of all nonfarm employment. And speaking of manufacturing -- it could again become a major force for the staffing sector -- there is speculation that the "energy revolution" could again make the United States a manufacturing powerhouse. For example, the cost of energy is about six times more expensive in Europe than in the U.S. so German carmaker BMW built a new factory in accordance to state-of-the-art sustainability principles in the U.S. to produce carbon fibers, which is a very energy intensive process. [We explored the apparent return of U.S. manufacturing in this space back in February.]

Temporary help services sector has been able to exceed its previous high 13 years ago despite significant shrinkage in two major customers sectors by servicing more sectors and / or broadening their array of services. But, they were not able to grow in terms of their share of the job market since the market share of temporary help services is slightly lower now (1.98 percent) than back in 2000 (2.03 percent).

Today, we -- along with a number of staffing industry consultants that we regularly work with -- are seeing that staffing executives are have come to the realization that in order to grow their business, they are not depending upon just temporary help services sector growth but are expanding into new markets, either, geographically or by discipline / service sector, or both.

A quick state-by-state analysis of Temporary Help Services job growth ...
 

As a means of demonstrating to you some of the strategic planning tools we provide to clients, we produced an interesting map for this month's employment report. It shows how temporary help service jobs have grown, or declined, in the first three quarters of 2012 compared to the same time period in 2011.

[Note: clicking on the chart will open it in a new browser window.]

The state with the greatest growth rate was North Dakota, which was up 21.8 percent followed by Arizona with a growth rate of 16.5 percent. At the bottom of the list was Delaware with a decline of 5.3 percent in the first three quarters of 2012 from the first three quarters in 2011.

Nationally, temporary help service jobs grew 7.2 percent in this time period (the maroon color).

As you can see, an almost contiguous group of states east of the Mississippi River registered growth rates well above the national rate. Those contiguous states are: Kentucky (up 14.9 percent), Illinois (up 13.7%), Tennessee (up 13.4 percent), and Mississippi (up 12.0 percent); and Nebraska, which is separated from that group, was up 14.1 percent. And a swath of five states from California (up 9.7 percent) to Kansas (up 11.5 percent) experienced growth rates above the national average.

We said that this was just a brief overview of our Temporary Help Services Interactive Data Book at the state level (other versions provide granularity down to the county level). A further description of this tool, along with a special discount, is under the Strategic Planning Tools heading in the box below, to the left.

Follow-up from last month ...

Last month in this space we summarized a recent NPR feature focusing on the federal disability program and how it has become, for some, sort of "permanent unemployment insurance." Last month the Federal Reserve Bank of St. Louis published an article on unemployment insurance program fraud, saying "In 2011, this program cost $108 billion, of which nearly $3.3 billion was spent on overpayments due to fraud." The authors "document a few facts regarding concealed earnings fraud among various income groups. These facts may help focus efforts to deter fraud and to recover overpayments." You can read the entire article here.

Where unemployment, disability, and no job skills collide ...

We came across an interesting news story recently that sheds some light on not just the employment picture. It also touched upon and tied it into a subject that we've addressed before -- that is how the very nature of work has changed and many who lose jobs because the company and / or sector becomes irrelevant are unemployable because they have no relevant skills.

The story, which was broadcast on NPR's This American Life two weeks ago and is entitled Trends With Benefits, is not without controversy because it goes further by parking itself in the middle of the intersection of unemployment, disability, disappearing jobs and irrelevant skills.

[Note: To examine the charts more closely, click on any of them to open them in a new browser window.]

Some of the major points of the story were:

1. Those on disability end up not considered unemployed nor part of the labor force because they are not actively seeking employment.

2. The number of those on disability has grown despite more services and assistance for people with disabilities. And this is not necessarily a new development. According to the NPR story, this has been growing for decades.

3. Since the late 1990s when the economy started to recover from the recession, NPR reports that "about 150,000 jobs [are] created per month. In that same period every month, almost 250,000 people have been applying for disability." [While this is true, the story did not point out that only about 35 percent of those applications are awarded. Today, about 14,098,000, which includes children, are on disability.]

4. Although there are likely some "fakers" and "cheaters" (as NPR put it), the growth in those on disability can partially be attributed to an aging population ("at they age, more and more of them qualify as disabled") because of health conditions.

5. And that brings up another important point -- healthcare coverage. With disability, "the government also covers your health care." Therefore, as NPR points out, "...  if your alternative is a minimum wage job that will pay you at most $15,000 a year, and probably does not include health insurance, disability may be a better option." [So, here's an irony: some of those against healthcare reform have done so under the banner of 'stopping a government takeover of the healthcare system' as other government programs passively already are and have been the 'payers-of-last-resort.' Right hand, meet left hand; political pun recognized.]

6. Some of those are on disability because they may no longer be able to do their former job (or their former job "disappears," which may have also included health insurance, in the occasionally labeled 'new' economy)  that involves physical labor and / or standing all day -- and here's where it probably gets the most controversial -- they are not qualified / have the education or training to do any other kind of work so they end up on disability, "disability has become a sort of de facto welfare for people without a lot of education or job skills," as one of the experts interviewed said. In other words, "Somewhere around 30 years ago, the economy started changing in some fundamental ways. There are now millions of Americans who do not have the skills or education to make it in this country." [Although not stated in this NPR story, others have said that disability has become sort of "permanent unemployment insurance."]

Here is NPR's Trends with Benefits story -- you can listen to it or here's the transcript as well as a web extra. If you are involved in employment services, we strongly suggest that you take the time and listen or read it. It may raise your blood pressure, possibly to the point that you too may be eligible for disability.

An interview worth reading (it's with moi!) ...

Lately we've been receiving an abnormal amount of requests for blog entries. Unfortunately, we don't have a lot of spare time to exert the necessary effort to develop gratis quality material. However, when the request is simply more than poorly veiled attempt of wanting free editorial material for a website / blog, and shows some real effort put into the request, we'll consider it.

One such request recently came from Purzue, a job market portal that, in addition to providing job postings for employers, also enables job seekers to create digital resumes to maximize their exposure to potential employers. They took the time to understand what we are about, how our experience and answers may help their stakeholders and posed some perceptive and provocative questions that made us think. In turn, we provided some thoughtful and insightful answers … the Q&A session can be found here.  

Analysis: Manufacturing rebounding??
 

Much has been said about the need for American manufacturing to come back as a way to rebuild the middle class in this post-recessionary economy. And since manufacturing can be a significant niche for staffing companies, we thought a quick examination of the trend with manufacturing jobs would be in order.

Manufacturing, which declined 16.6 percent, or about 2,270,000 jobs, from January 2008 to January 2010, were up 4.3 percent, or about 500,000 jobs, from January 2010 to January 2013.

But, let's put it into a little perspective and go back to 1945 when there were about 15,700,000 manufacturing jobs, which represented about 37.4 percent of all nonfarm jobs. In the 1950s, it was 30.4 percent; 27.4 percent in the 1960s, 23.0 percent in the 1970s, 18.5 percent in the 1980s, 14.8 percent in the 1990s, 10.9 percent in the 2000s, and 8.9 percent in the 2010s, which is the current level. Interestingly, although the level had pretty much declined -- there were a few exceptions when it rose -- by a tenth of a percent every few months since 1945, it has remained unchanged at 8.9 percent since August 2009. (Incidentally, some research in the 1980s determined that some of the decline in manufacturing employment was due to manufacturers filling their jobs with workers from the services sector, such as temporary help services. However, the portion was relatively minor and did not materially affect the trend of declining manufacturing employment.)

Today, manufacturers would need to add more than 1,750,000 jobs just to get back to pre-recessionary levels assuming the market share of manufacturing jobs is unchanged. Calculated another way, if manufacturing maintains its market share of all nonfarm jobs at 8.9 percent, the economy would need to add a total of about 20,000,000 nonfarm jobs, or nearly 17,000,000 more than it had at the onset of the recession and that is not likely to happen in the foreseeable future.

For manufacturing jobs to rebound significantly, they must regain market share and conditions are good. Rising wages offshore and transportation costs are making U.S. manufactured goods more competitive domestically and for close-in markets. In addition, as manufacturing becomes more technically advanced and products more intelligent, there will continue to be growing value in design, engineering, process management, and quality control, all areas in which America excels.

And major developments changes such as in the energy sector are helping as well. The abundance and relatively low cost of domestic natural gas due to advance recovery techniques is partially responsible for U.S. manufacturing growth. U.S. natural gas is a fraction the cost of other major global manufacturers (U.S. natural gas is between 20 to 30 percent the cost of natural gas in Japan, Korea, and Germany) and the resultant low cost of electricity it produces, which is a significant cost center for manufacturers. As a result, North American and U.S. manufacturers offer a significant cost advantage and are experiencing a renaissance. No need to look further than your iPad to see that Apple will be onshoring some of its manufacturing. In addition, a Brazilian manufacturer of denim recently opened a factory in Texas to produce denim. Yes, textile manufacturing is apparently returning to the United States, due, in part, to cheap energy.

The most recent Beige Book, published two days ago by the Federal Reserve Board, noted positive changes in the manufacturing economy in many parts of the country. (See "Did you catch it?"  below for more details.)

At the onset of the recession, manufacturing jobs were 9.9 percent of nonfarm employment. In that scenario, nonfarm employment needs only to grow by less than 4,000,000, which is realistic. FYI, since January 2009, nonfarm employment has grown by about 5,500,000 jobs.

Commentary ...

Although you may be sick and tired about hearing about it, we would be lax if we didn't offer up a comment about the federal budget sequester. All of the inaction from what has essentially become a dysfunctional Washington reminds us of an old joke (or is Washington the joke, but we digress). We won't relate the joke in its entirely, so here's an abridged version:

The body parts were having a meeting to see which was in charge. The brain thought it should be because it does all the thinking; the eyes made its argument because it sees where the rest of them are going, so it should be; the stomach because it provides the energy; the legs because it provides the transportation; and then -- and we're using another word otherwise this email may not make it through spam filters -- the sphincter piped in that it should be in charge. All the other body parts laughed at it, it got mad and closed up tight. Soon the legs were wobbly, the stomach was queasy, the eyes were watery, and the brain got cloudy. All the other body parts agreed the sphincter was in charge.

Come on now, do we really have to continue and draw you a chart? Whatever your political leanings, the sphincter is the other guy.

What sectors are driving new job growth?
 

As a majority of  our readership are involved in employment services in one form or another -- and sectors and industries that are creating new jobs at a heavy clip are of interest to employment services because that highlights opportunities for selling those employment services -- we thought it would be interesting to take a look at two sectors that appear to be generating  large number of new jobs relative to all jobs. Same bit of logic of why famed bank robber Willie Sutton said he robbed banks -- because 'that's where the money is.'

This chart (click on it to open in a new browser window) compares the number of new jobs generated in the private sector with the change in the number of jobs for two sectors, which happen to have a lower average wage base than all private sector jobs. This is not saying that higher wage sectors are not also generating new jobs -- just that these two lower wage sectors are simply generating a high volume of new jobs.

Although we are not going to get into a detailed discussion of what constitutes a low-wage sector, it should be sufficient to say for this discussion that, on the average, Retail trade wages are about 37 percent less than overall private sector wages and Leisure and hospitality wages are around 57 percent less than overall private sector wages.

When comparing the total number of new jobs for these two low-wage sectors -- Retail trade and Leisure and hospitality -- we found that they are generally contributing a larger share of the new jobs in the private sector compared to a few years ago. Generally in the past few months, more than 50 percent of the new jobs have been in these combined two sectors, which was not the case in 2010 nor 2011.

Of course, this is the trend nationally; economic and employment trends and conditions vary widely on a local basis. We have a variety of tools and services to help staffing find out what is happening in their local markets and, in the words of that famous bank robber, to find out 'where the money is.'

A seasonal message (with a twist) ...
 

As this is likely our last communiqué before the calendar ticks over to a new year yet again (is it just us, or is this event coming sooner every year?), we wish you and yours a happy and stress-free holiday season as well as a successful and prosperous new year. And although it may only be three simple words plastered on fancy cards this time of year, we cannot think of a more appropriate greeting than "Peace on Earth" at this time.

We think that simple message implies helping others and cooperating with them, so to those folks in Washington (we are being polite here with "folks" although "self-serving partisan ideologues" is probably more appropriate), it also applies to you!

Did you catch it?

The Federal Reserve Board's Beige Book was published last week and it included a plethora of findings from Fed researchers about regional developments that are of direct interest to those active in all of the staffing sector's verticals. Overall, skills shortages persist in many areas of the country especially in IT, engineering, as well as for truck drivers. And some employers -- facing an uncertain economic future into 2013 mainly dominated by the "fiscal cliff" (which is really more of a gradual downward slope should it come to pass, but we digress)  -- are adjusting the way they are staffing such as extending the "temp" portion of "temp-to-perm" arrangements. In a more general vein, the regional economic impact of Hurricane Sandy was also reported.

Our summation of the Beige Book highlights passages of concern to staffing and employment services and the sectors and industries that drive them.

-----------------------

We're taking time off this month from the in-depth examination / commentary on general economic and employment issues normally found in this space as we prepare a host of new client projects for 2013 and take some well-deserved downtime. Do you have any economic and / or employment issues that you would like to see us address in the coming year? Please let us know.

What's really happening with unemployment ...
 

Last month, upon learning that the unemployment rate declined by 0.3 percentage point to 7.8 percent, management guru and former head of GE Jack Welch tweeted "Unbelievable jobs numbers.. these Chicago guys will do anything.. can't debate so change numbers". It should come as no surprise that this statement created a lot of controversy in the media and blogosphere -- and he followed up with a further explanation in The Wall Street Journal. Other musings about the subject attributed the September drop to a 'statistical fluke.'

We are not going to weigh in directly on the subject, but while preparing a presentation for a small group of staffing business owners, we came across an interesting development ourselves about the unemployment rate. 

You may not be aware that the official unemployment rate is for those 16 years of age and older. However, there are also breakdowns of unemployment by education attainment for those 25 years of age and older. It was when we were looking at those data series, something interesting emerged.

The top chart shows what is expected -- the unemployment rate rises during a recession as the the number of jobs declines. At some point, the situation reverses as the recession concludes. And that is what indeed happened for the 25 and older cohort.

But when looking at a subset -- those with less than a high school diploma -- as their unemployment rate declined after the recession, so did the number of them employed. There are likely several reasons for what we call a "counter-trend."

One is that the apparent "mismatch of skills" -- workers do not have the skills that employers are looking to hire for -- that we've been hearing about may be at play here. However, we don't completely buy into that argument since the "mismatch of skills" can also be defined as 'employers, possibly because of weak economic growth, are not willing to offer wages to attract the types of workers they want.' Let's face it, does anyone believe that employers who are having trouble finding enough "widgetologists" to hire would have troubles if they decided to pay significantly more than they are currently offering?

But, these charts could mean that the unskilled jobs that this cohort had before the recession went away (we'll leave it up to the politicians to tell us what happen to those jobs) and have not yet returned, if they ever will. Perhaps, in this aspect, the "new" economy is indeed a different animal (more about the type of animal in the next paragraph) than the previous one and no longer requires the types of jobs this group had before the recession. Therefore, this group needs some retraining for the types of jobs that do exist in the new economy. Maybe that's where some of those 25 and older with no high school diploma are now -- back in school or retraining programs. Maybe some have found 'off-the-books' work.

Some may conclude that this population has decided to completely drop out of the workforce, in which case they are no longer counted as unemployed. But, quite frankly, this last reason is most assuredly wrong. In other words, "If you hear hoof beats, why would you assume they are made by zebras?"

The main reason that the size of this cohort has shrunk is because there simply are less of them due to the decline in the birth rate in the late 1980s and early 1990s and historic improvements in high school completion rates in the 1990s and 2000s. This is a very visible manifestation of the shifting demographics of the workforce that was initially explored in Workforce 2000 and its companion study Workforce 2020, which we discussed more than six years ago in this space back in April 2006. Those demographic changes are and will have a profound impact for companies who are in the business of providing human capital (e.g. staffing services).

What we are certain about is that there is no single answer to this question.

We interrupted our regularly scheduled programming ...
 

last month to bring you our analysis of how -- or if -- the employment situation was influencing state-by-state voter preferences in the national presidential election. If you missed it, you can see that analysis here.

And now back to the topic we had planned to address last month.

Nationally, temporary help service jobs grew 10.6 percent from 2010 to 2011. Some states grew faster than the national average, many grew at about the national average, and some grew below the national average. However, it's clear that the eastern half of the United States generally did better than the western part of the country. As the saying goes, your actual mileage may vary, so this state-by-state examination may prove to be helpful. (To view a larger map, just click on it.)

We present this information as a not-so-veiled demonstration of the value of our two major strategic planning tools, which provide much more detailed information both in terms of geography as well as industry and sector. Want to know the trend for temporary help services in Lake County, FL, or Lake County, IL? We can show you how many temp help jobs there were in every month for the past four years, how many temp help branches there are and how it has changed, and even how much the temporary workers are earning as well as how much payroll the average temporary help services branch is generating. But knowing and comparing your company's performance to the local market trends is only half the story.

So we also provide another strategic planning tool that shows the employment trends for all the active industries and sectors at the local level. It can be very helpful to see what industries and sectors are adding jobs, what the average wages are, how many new business have started by industry and sector, etc. -- and all available at the local level in easy to understand charts and tables.

For further information, go the Products section of our website, which includes self-paced demonstrations.

Red states, blue states, white states, oh my!
 

Well, here was an interesting exercise.  Is there some correlation between how the unemployment rate has changed in the past year to how that state is leaning in the upcoming presidential election? After all, if we are to believe the media and even the candidates, this election is all about jobs.

To determine if a state was red (expected to vote for Romney), blue (expected to vote for Obama), or an all important "swing" state, we examined four different sources, which are all presented in the map (click on it to open in a new browser window). There was surprising agreement among those four sources for most of the states, but occasionally there were differences. When there was a difference, it was not if a state was leaning red or blue but rather the difference is whether it was a swing state or a red or blue state. In those instances, we simply simply said if it was leaning in one direction or the other.

Then we examined the change in the unemployment rate in the past year by state (click on it to open in a new browser window). Actually, it fell in most of the country, with the largest drops in Florida, Mississippi, and Nevada, which each declined by 1.8 percentage points. It should be noted that all three were quite high a year ago and still are over the national average. Florida went from 10.6 percent in July 2010 to 8.8 percent in July 2012, Mississippi from 10.9 percent to 9.1 percent, and Nevada was 13.8 percent and 12.0 percent in July 2012.

There really doesn't seem to be a discernible pattern. Some states where the unemployment rate has declined are firmly red states while others are blue and another is clearly undecided. Conversely, some states where the unemployment rate has increased are blue and others are red.

The point of this exercise was not to predict the winner in November but to see how, if any, the issue of unemployment (and by proxy, jobs) may be having on voter behavior. But, this does not mean that employment prospects have no influence in this election. However, it does appear that employment alone is not the overwhelming determining factor who will be sitting in the Oval Office come January.

This analysis suggests that candidate selection is perhaps a bit more complex than is suggested by all the hand-wringing over the jobs report expressed in the media.

Conclusion? We don't think there is really a solid connection, but it was a good exercise, nevertheless. Or to quote American inventor Buckminster Fuller, "It was never my intention to design the geodesic dome. I wanted to discover the principles at work in our universe. I could have ended up with a pair of flying slippers."

Anyone want a pair of flying slippers? If you don't want them, they are going on cragislist.

Did you catch it?

Last week, the Federal Reserve Board published its latest Beige Book, which comes out eight times a year (does anyone know a word for eight times a year? saying "the Fed's octuple Beige Book" just doesn't seem correct), and it presented a mixed bag of regional economic and employment trends. If you haven't seen our summation of it that pulls out passages relevant to jobs, staffing and temporary help services, and IT staffing and solutions companies, head over to our summation page, which also includes a link to the full report if you have the appetite to read the whole thing.

Are we headed into another recession?
 

We don't think so, but the news and data are enough to keep economic growth below average for some time to come. As the Fed's Beige Book last month recounted (for our summation of it focusing on developments relevant to employment services, commercial and professional staffing, IT staffing and solutions companies, and the sectors they service, click here; you can sign up on that webpage to receive our summation when the next Beige Book comes out in less than two weeks), employers around the U.S. expressed concerned about "uncertainties surrounding the potential impact of developments in Europe."

The uncertainty involving sovereign debt issues in Europe is not something that the U.S. economy can ignore. But even with three years into the recovery of the U.S. economy, there's still plenty of domestic developments and trends to cause concern about the immediate  and longer-term future. Gross domestic product (GDP) growth was limited to 1.9 percent in Q1 2012, which was down considerably from Q4 0211 growth of 3.0 percent (Q2 2012 GDP data will be released the end of this month).

And don't expect Washington to be able to fix this. Regardless of where you lie on the political spectrum, apparently the other side is totally out of touch with the American people and has the wrong solution.

What is clear is that many occupations and industries continue to face skills shortages even in the face of relatively weak economic growth. This trend, along with a "wait-and-see" attitude among many employers, is creating increased demand for temporary help services in many sectors and areas around the country. Uncertainty is not necessarily a bad thing for a sector that has developed an expertise in providing workers on a temporary basis.

At a recent Fidelity Investments webinar, the consensus among the presenters was that the U.S. "will lead the world out" of the current economic situation and the housing market "will eventually improve." Although it may not feel like it to us, foreigners find the U.S. especially attractive for investing their money, which includes buying U.S. real estate, especially in light of the shaky situation in Europe and slowing growth in China. But this is not a new phenomenon.

For those who were around in the 1970s and 1980s, recall that foreign investments in the U.S. soared as this country offered the some of the best global investment opportunities. Let's go back further. A significant part of this country's early history was a result of a foreign investment. According to Gale Encyclopedia of U.S. History, the basis of the English settlement of Jamestown, VA, was the result of an investment of some London stockholders in the early 1600s who hoped the settlers would discover gold and silver. If any of you were around then and can confirm this, please let us know.

Or in the words of Yogi Berra, "It's like deja-vu, all over again."

It's going to be a long, hot summer (already is in many parts of the country), with many different opinions and heated exchanges on how to best address this country's economic malaise.

We think a quote from another Yogi, Yogi Bear, is most appropriate, "Another golden rule is: don't lose your cool." And let us not forget that this Yogi, is "smarter than the average bear" so we consider this good advice, even coming from a cartoon character. Too bad we can't say that about our politicians .. well, we could say it, but it just wouldn't be true!

You can get better strategic information than an international staffing company ...

This is a slightly edited version of an e-mail we received from a global staffing company with its own extensive in-house research capabilities as a result of our commentary last month that included a map of the market share of temporary help services by state:

Hey Bruce,

I got a quick question for you. How were you able to calculate the penetration rate by state? From my understanding, the [government] does not publish ... industry by state ... Maybe this is a glitch in our system, or in the recent [government data].

Nonetheless, any insight from you would be much appreciated.

Keep up the awesome job.

Kind regards,

a fellow analyst.

This was our response:

Hello [name redacted],

Nice to hear from you ... I really appreciate hearing how my work is, well, appreciated.

I would love to help you, but I'm sure you understand that access to that information is limited to our on-going clients on a subscription basis.

Incidentally, penetration rate trend information is included in our Temporary Help Services Data Book strategic planning tool. My clients have found it very helpful to see the multi-year trend for temp help penetration rates not just at for a state, but at local market level as well. I recall one specific case a year or two ago. The client found it especially helpful to see that although the TH penetration rate was declining in a particular state, the tool was able to identify that the THS penetration was growing in a specific metro and city in that same state and targeted that market for expansion. Then with our companion Employment Tracking Tool, we were able to identify several sectors in that market to concentrate their marketing efforts.

Best regards,

Bruce

For more information about our strategic planning tools, click here.

So, what 's your market share? ...
 

At the industry level for temporary help services, most consider "market share" as the portion, or percentage, of all jobs that are provided by temporary help services. Last year, it was about 1.8 percent and in Q1 2012, it's approaching 1.9 percent. This tells us the sector is growing in a national basis.

The market share that temporary help services has varies greatly by market and is dependent upon a variety of factors. We thought you would like to see what market share, also referred to as the penetration rate, looks like on a state-by-state basis (click on the map for a larger version that will open in a new browser window). As the map shows, it varies immensely throughout the country from a low of about 0.3 percent in Alaska to a high of more than 3.0 percent in South Carolina. Although we only present temp help market share by state here, the penetration rates go much higher in many metropolitan areas and county-wide markets. We provide that information -- and much more -- through our exclusive strategic planning tools.

Interestingly, but not surprisingly, one of the highest average weekly wages for temporary help jobs is in Alaska at almost double the wages in South Carolina. Yes, we also are able to drill down and see what wage trend for temporary help services is at the metropolitan as well as county levels. Great information for staffing company executives to see evaluate a potential market as well as to discover what strata of the market they are currently serving. And, our tools also look at the local jobs economy by sector or industry, so our analyses additionally provide information on the employment and wage trends at the market level.

If you want to see what temporary help employment trends look like over several years in the markets you serve -- or are thinking about expanding to -- that information is available through our tools designed specifically for the staffing industry. For more information about, go to our products page.

While we are talking about trends throughout the country ...

Next week, the Federal Reserve Board will publish its Beige Book and we will publish our summation of it focusing on remarks relevant to jobs and employment in general, staffing services, IT services and the sectors that staffing companies focus on. Only those who have signed up to receive the notification will be informed when our summation is published. If you want to be included on that list, just go to our current Beige Book summation from April and fill out the form at the top of the page. There is no charge or either the notification or access to the actual summation.

The Beveridge Curve is heading the wrong way ...
 

A couple of weeks ago one of our editorial advisory members mentioned that some economists think the Beveridge Curve has shifted outward and to the right since 2007, which is not good (no political implications).

Developed in the late 1950s by two British economists (neither of whom were named Beveridge, but we digress), the Beveridge Curve, according to Famous Figures and Diagrams in Economics, is an attempt to measure "excess demand in the goods market for the guidance of Keynesian fiscal policies. ... Since excess demand is unobservable ..."   Huh? The actual idealized curve is a "rectangular hyperbola" -- double "say what"? And, you are just going to have to trust us when we say, the mathematical formula for drawing a Beveridge Curve is a triple 'they-have-got-to-be kidding", squared.

Its basic concept of comparing job vacancies to unemployment seemed intriguing to us, albeit with a fairly obvious relationship, which would be an inverse one. Unemployment should go down as vacancies rises and vice-a-versa, which is a phenomenon that every staffing professional has likely experienced firsthand. But the question remains if the relationship between vacancies and unemployment in the current economic cycle is different than in the past. So we went about plotting those two measurements and the resulting chart is displayed above (if the chart is unclear, click on it to open in a new browser window). Let's just call what we came up with as "Steinberg's Non-Wonky Beveridge Curve."

We think our chart shows in dramatic fashion how severe -- and different -- this past recession has been and how the recovery still has some serious distance to travel before we are in a "normal economy," which is the area between the two recessions represented in the chart. And there are a bunch of other interesting clues how this past recession and subsequent recovery is fundamentally different than "normal."

Although the vacancy rate has finally recovered to the level for the period after a recession, clearly the unemployment rate has not. As we've discussed in this space many times before, but the persistent high unemployment rate -- despite an acceptable number of vacancies in a post-recessionary period -- could likely be due to a mismatch between those job openings and workers' job skills. The lack of enough qualified people to fill a rising number of job openings is being widely reported throughout the media and indeed is a phenomenon that staffing companies are seeing today. But that also means it's an opportunity for staffing companies who have figured out how to fill those openings.

We found it particularly interesting how the two series definitively moved in opposite directions before the recession officially started. Let us know what the chart says to you.

2020 is only eight years away ... this free report will help you plan to get there

Our special supplemental standalone report on the future nature of jobs to the year 2020, which includes a focus on what the future holds for staffing and employment services, is still available. And because we know our audience tend to the analytical, the eight-page report is packed with charts and tables of data. The report also includes lists of the fastest growing industries/sectors as well as types of jobs in order for staffing executives to help in their strategic planning for the immediate future. If you would like a copy free of charge, just shoot us an email and we'll send the link to you.

And now, time for something a little different ...
 

To keep our monthly commentary fresh and topical, we are doing away with it this month.

Its absence is not because there aren't a plethora of interesting and relevant topics. It's just that we have a subject that can't really be addressed in this limited space.

This month we are publishing a brief standalone report on the future nature of jobs that includes a focus on what the future holds for staffing and employment services. And because we know our audience (or stakeholders for those of you who faithful to the latest corporate jargon) tend to the analytical, the report is packed with charts and tables of data. Here's a sample to the right that shows how the percentage of different types of jobs are provided by staffing services. The report also includes lists of the fastest growing industries/sectors as well as types of jobs in order for staffing executives to help in their strategic planning for the immediate future.

If you would like a copy of the eight-page report free of charge, just shoot us an email and we'll send it to you. Alternatively, if you can't wait, just visit our Twitter page. We tweeted about this report yesterday and the tweet includes a direct link to the report. FYI, you do not have to have or open a Twitter account to see our tweets or download the report via Twitter.

Important service notice (change) ...

Next week, the Federal Reserve Board will publish its Beige Book and we will publish our summation of it focusing on passages relevant to jobs and employment in general, staffing services, IT services and the sectors that staffing companies are focused upon. In the past we have sent a notification of our summation to everyone who receives this monthly employment report, but will not do that next week. Only those who have signed up to receive the notification will be informed when our summation is published. If you want to be included on that list, just go to our current Beige Book summation from February and fill out the form at the top of the page. There is no charge or either the notification or access to the actual summation.