When businesses have concerns about the economy, they often lay off or stop hiring temporary workers before firing full-time employees. For that reason, temporary staffing employment has been a reliable early warning signal of labor market weakness and recessions. As we share below, declines in temporary help services employment preceded the last three recessions by 6 to 12 months in each case.
The relationship makes sense. When uncertainty rises, companies release temporary workers, as permanent headcount can be expensive to let go of and equally costly to rehire when needed again. Recently, however, the leading relationship between the number of temporary workers and the total number of employees has changed.
The graph below shows an odd divergence between headline payroll growth and the number of temporary workers. The number of total employees has been rising steadily since the COVID lows, albeit employee growth has stagnated lately. To the contrary, the number of temporary workers has been declining steadily since 2022.
It now sits below the prior peaks leading into each recession. Moreover, consider that the economy has grown significantly since those prior recessions. Accordingly, the ratio of temporary workers to total employees is now at the level of the prior recession troughs.
This raises a question worth pondering: are temporary workers not as vital to today’s economy, or is it sending a concerning signal that the labor market will soon falter? Before coming to any conclusions, realize that many old rules of thumb that helped forecast the economy have failed to work since COVID. For instance, the Conference Board’s Leading Economic Indicators have fallen steadily since 2022 and sit well below their 2020 trough.
JOLTs & ADP
Heading into today’s BLS employment report, it’s worth reviewing this week’s JOLTS and ADP employment reports as well as the ISM manufacturing and services employment surveys.
: Private sector employment rose by 109,000 jobs in April, the largest increase since January 2025 and above market expectations of 97,000. While improving, the data still points to what Fed Chair Powell describes as a “low-hire, low-fire” labor market. Employers have largely avoided layoffs but have reduced hiring. As the graph below shows, both ADP and BLS have been improving recently but remain well below their levels in 2023 and 2024.
: Job openings fell by 56,000 to 6.866 million, while hires rose to 5.6 million – the biggest increase since May 2024. Total separations were little changed at 5.4 million, with quits at 3.2 million and layoffs at 1.9 million. As shown in the second graph, information job openings, while volatile, are at the lower end of their 8-year range. This is the sector to watch for signs that AI-related layoffs in tech are beginning to appear in the data.
: The Index contracted for the second consecutive month, reading 48.0%. That was up from March’s 45.2% but below the 50 expansion threshold. The Index fell to 46.4%, down 2.3 points from March’s 48.7% and also pointing to contraction in the labor market.