What is Temp Work Saying About GDP and NFP?

With November’s Non Farm Payroll coming out Friday, we thought a few previews this week might be instructive. 

Temp_help_monthly_10_years_2
One of the leading indicators of job creation are the hirings at various temp services. Companies unsure of future expansion use temp workers, and then shift to full time permanent employees as things firm up. As the 10 year monthly chart nearby shows, Temp Hiring is quite cyclical.

Temp jobs have been declining throughout the year, except for October, when they rose by 20,000, or +0.79%, to 2.58 million. Whether this is the start of a major turn in employment, or merely a statistical blip is unknown now. Note that on a year-over-year basis, October 2007 data represented a decrease of -1.59%.

Let’s see what the leadership of one of the big temp firms has to say about this, via WSJ’s Real Time Economics:

"Carl Camden, president and CEO of temp giant Kelly Services Inc., calls the job market “perplexing.” The economy growing at 3.8% in the second quarter and 4.9% in the third quarter generally should be associated with monthly gains of 150,000 to 250,000 jobs, Mr. Camden said in an interview with the Journal. Instead, GDP and temporary employment growth — once strongly correlated — seem to have decoupled." (emphasis added)

Unless you can show me another ~5% GDP quarter where S&P 500 profits
were down 8.5%, I think the answer to this conundrum is obvious: There has been no "decoupling." What I strongly suspect occurred is that the 4.9% GDP is a fantasy, a statistical
sleight of hand that is half inventory build, and half wildly
understated inflation.

Of course, I could be wildly wrong, inflation may be tame, GDP robust, and the employment picture just fine (your mileage may vary). But I have a sneaking suspicion that is not the case.

Here’s another chart, Employment Trends & Temporary Help Data Report, via Bruce Steinberg:

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Steinberg_chart1
Courtesy of Bruce Steinberg

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Sources:
Kelly Services Chief: Jobs Picture Perplexing
Sudeep Reddy
December 4, 2007, 3:59 pm
http://tinyurl.com/2v5cv4

Employment Trends & Temporary Help Data Report
Bruce Steinberg
November 2007
http://www.brucesteinberg.net/prod03.htm

Temporary help services Employment
Seasonally Adjusted – CES6056132001
BLS chart
http://data.bls.gov/cgi-bin/surveymost?ce

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What's been said:

Discussions found on the web:
  1. Ed Sanders commented on Dec 5

    Call me crazy, but wouldn’t you expect a Sept. to Oct. rise in temp employment as retailers (and shipping companies) geared up for the holidays?

    I wonder how this Sept./Oct. rise compares to that of recent years past.

  2. justin commented on Dec 5

    How much influence on the overall employment picture are the hiring of paralegals, etc., (to combat all the litigation against mortgage and stock fraud)is responsible for an uptick in employment? If I’m not mistaken such data was mentioned here, not too long ago in one of the reports.

  3. Eclectic commented on Dec 5

    http://www.youtube.com/watch?v=lZ_Knw5latM&feature=related

    I’m afraid it’s not a matter of either employment or GDP currently, but the threat to liquidity that the Fed must address.

    It’ll ultimately take another full point or more, and right now the Fed is perceived to have demonstrated very little leadership in this escalating problem.

    Rick Santelli, you’re off base. It should be at an absolute minimum 50 on the Discount Rate and probably as much as 150, and not delayed until the 11th. Fed Funds?… probably at least 50 and maybe even 75, or more. LEADERSHIP is the key.

    The ship is threatening to break loose from its moorings, and it puts the Walking Around Economy at threat if it does. And if it does, you’d see a liquidity crisis that would make everything so far seem as though a canoe in the wake of a battleship.

    On ADP – It’s confusing of course, but employment is at best a coincidental indicator and in practical experience a significant lagging indicator. You let a real financial crisis precipitate now, and you’ll get all the unemployment you want. You’ll be up to your ears in unemployment.

  4. Yaser Anwar commented on Dec 5

    GDP was a total hoax! Inflation used for Q2 was 1.6%, whereas actual was 3+. (S: John Mauldin’s letter)

    ~~~
    BR: We covered the same subject: GDP=4.9% ?

  5. Stuart commented on Dec 5

    ADP data just released shows 189,000 private jobs created. Go figure. Add gov’t hiring and many are not expecting a 200,000+ jobs report on Friday which would correspond to about a 4%+ GDP.

  6. Stuart commented on Dec 5

    oops, that last comment should say

    “many are NOW expecting a 200,000+”…. fat fingers.

  7. Winston Munn commented on Dec 5

    You cannot solve insolvency problems with liquidity – and the Fed has become a minor player in this game, anyway.

    John Hussman writes,

    “The Fed – thimbles of water in a forest fire

    My greatest concern at present is that investors are being bombarded with empty hope that the Fed will save them by “injecting liquidity” into the banking system. Time spent examining these false perceptions is not time wasted.

    Very simply, the impact of Fed actions is sorely exaggerated. The amount of liquidity that the Fed provides is minuscule in relation to the U.S. banking system, and also in relation to the volume of capital inflows (about $2 billion daily) that the U.S. relies on from foreigners, thanks to our massive fiscal deficits and low savings rate.”

    Full piece here: http://www.hussman.net/wmc/wmc071204.htm

    The Fed can cut all they want, but in the end it won’t do much good. The problems of the credit overexpansion that preceded this meltdown and the credit contraction occuring now is outside their control.

  8. michael schumacher commented on Dec 5

    Someone help me out here……what in god’s name is so great that just tacked on a hundy on the dow and 30 on the NAS.

    I can’t find anything that would have reasonably caused that.

    Anyone???? Bueller?? Bueller??

    Ciao
    MS

  9. michael schumacher commented on Dec 5

    and fake job “creation” doesn’t count….

    Ciao
    MS

  10. Rusty commented on Dec 5

    As BDG123 pointed out recently in his blog, the indexes are not usually a proxy for news or psychology – they are driven most of the time by quants and technical trading.

    And a lot of the time when they do seem to be driven by news, such as rate cuts, most of the stimulus is the move in the fed futures indexes forcing quant fluctuations. Which flucts us white guys, too.

  11. Stuart commented on Dec 5

    Good thing there’s a war. facetious.

    U.S. Oct. factory orders rise 0.5% on defense, metals
    10:00 AM ET, Dec 05, 2007

    U.S. Oct. core capital equipment orders fall 2.0%
    10:00 AM ET, Dec 05, 2007

  12. michael schumacher commented on Dec 5

    I saw the SPX down last night…..watched something else for about 15 minutes, flipped back over and the Nikkei was green and , you guessed it, driven by those clandestine buys in the middle of the night.

    How that continues to be a vehicle for those in deep denial is beyond me. It’s there for all to see yet everyone just plays along with it. I have to admit I do to but it’s a little discerning when China says our economy drives it’s economy and magically we are up 100 pts…..on s jobs report that has mattered very little to anyone since it’s inception….but only if it strokes us though..

    Ciao
    MS

  13. wunsacon commented on Dec 5

    Some software companies hire temp workers from overseas contractors, who move back offshore after a few months of training. I wonder if these contractors are counted as new contracting hires as they come in but not removed from consideration when returning offshore. That would distort the stat of “# of US-based, employed contractors”.

  14. Eclectic commented on Dec 5

    Winston,

    Insolvency and illiquidity are not the same thing.

    I have never advocated a bail-out for anyone, and insolvency will have its own end for many… many indeed.

    However, that core thing that money is, that I’ve spoken of here for months and months, is L-A-B-O-R, both mechanical and intellectual, and that is where true LIQUIDITY is found.

    This is going to be deep for anyone who hasn’t read my theoretical work, but…

    When liquidity drops, human productivity not only ceases its perpetual ascent toward philosophical infinity, but it dives toward zero.

    Remember that mankind’s true economic objective is the reduction of costs of goods and services marginally toward zero, even if only understood subconsciously, and that objective is attained when human productivity reaches theoretical infinity.

    Near total illiquidity (in theory the result of any sort of financial crisis that might be pending) drops human productivity in theory to marginally approach Z-E-R-O, thus having the diametrically opposite effect on the costs of goods and services as is mankind’s objective.

    Illiquidity can exist even in a state of perfect solvency, because, as I’ve said, the currency value or non-inherent commodity value of the exchange mechanism of commerce (Labor, intellectual or mechanical in all cases) can not (will not) induce the exchanging of labor. No labor flow… NO MONEY FLOW. That is where money is created, and the creation is a perpetual dynamic.

    You may be asset rich. I may be asset rich. If we are unwilling to exchange labor, we are illiquid. We are not insolvent.

  15. Peter Boockvar commented on Dec 5

    The Nov ADP private sector job gain of 189k was the strongest reading of the year and 46k more than the 2nd best reading. In Nov ’06 it rose 258k, also the strongest # of 2006, by 63k and in Nov ’05 it rose 301k, the highest in the history of this data, 60k above the 2nd highest reading in 2005. Only in retrospect will we know if ADP had difficulty in their seasonal adjustments for November for the past 3 years ahead of the holiday season so it does make the Govt Payroll data on Friday still always difficult to predict.

  16. Winston Munn commented on Dec 5

    Eclectic,

    Thanks for the reply. As you know, I have read and reread your work and agree in principal with the concepts – as far as my puny brain can comprehend, anyway.

    A couple of points – first, you are dead-on right that it is the exchange of labor that prompts economic activity; however, when all productivity gain has been squandered on sustaining a debt burden, the continuance of real economic activity is thwarted – there can be no growth as all productivity is absorbed, hence, an insolvency, or, the inability to gain from the exchange of labor.

    The U.S. has reached a point where $2B a day in foreign productivity is required to service debt – which means, due to the zero or less savings rate, that A-L-L U.S. productivity is spent. At this point, it is impossible to move towards the ultimate goal as expressed by philosophical infinity, for movement of productivity is co-opted into a perpetual slave/servitude role to its master, debt.

    If liquidity cannot spur a benefit, then the problem is not one of liquidity but solvency, where solvency is defined as the ability to benefit from productivity.

  17. dano commented on Dec 6

    In 2000, I had a sneaking suspicion I should sell my temp-help company as the market was peaking. I didn;t do it, and by 2002, had my first money-losing year since i started.

    This year, I had a sneaking suspicion again, and sold out. Time will tell me if I am right or not.

  18. Eclectic commented on Dec 6

    Winston,

    I have a fundamental structural concept of a liquidity crisis that does not lend itself well to a discussion of insolvency.

    Maybe I can summarize it this way without a long philosophical discussion which would be required to fully illustrate my theories.

    Illiquidity is: The unwillingness to transact.

    Insolvency is: The inability to transact.

    The reason it is so hard to differentiate the two is that they have the same outcome, and the great dilemma for the financial system is that it can’t at present determine which of the two is the ultimate problem.

    That’s why we need leadership and proactivity from the Fed, the White House, Treasury and the Congress.

  19. Winston Munn commented on Dec 6

    Eclectic,

    I certainly see the difference and I agree with those definitions – but I might add/ask that insolvency should include a modifier, i.e., “the inability to transact meaningfully/beneficially”?

    The way I envision the insolvency/illiquidity conundrum is that if productive transactions are impossible, that will lead over time to a decrease in the velocity of transactions even if the ability to transact is unaffected. In other words, the inability to transact meaningfully will lead to an umwillingness to tranact even if non-meaningful transaction is still possible.

    Consider the home borrower who can afford to pay $1000 a month but whose mortgage calls for $1500 a month – the ability to transact is intact, but the benefit to doing so is absent.

    Or to explain my concepts another way – imagine a homebuilder centered in a clearing of a surrounding forest, of which his supply of raw lumber is comprised. If the need is for 1000 trees to complete his housing projects but the forest has been depleted to 500 trees, planting additional trees will eventually rekindle ability to fully transact. This is an illiquid situation.

    However, imagine that same scenario except this time the homebuilder is also a pyromaniac and the surrounding forest contains an endless supply of trees. Each time the builder completes a house, he immediately burns it to the ground. Regardless of how quickly he builds, the end result is the same – no movement toward philosophical infinity. This is a situation of insolvency.

    As you can see, the conundrum is that the a-p-p-e-a-r-a-n-c-e of a well-stimulated economy occurs in the second example, as employment remains at 100% and velocity of transactions can be quite high, but full employment and velocity are negated by a inability to benefit from the future productivity.

    No matter how many new trees are planted, the problem remains – unless the builder’s pyromania is treated and cured, any attempt by adding more trees to spur beneficial productivity can only lead to a “tree bubble”.

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