The economy has added non-farm jobs at a steady pace so far this year, but with businesses cutting back on hiring temporary workers, economists say the labor market may be on course to weaken.
An average 136,429 jobs outside the farm sector were added each month through July, according to Reuters calculations. However, temporary employment in the same period has dropped by 52,500, foreshadowing a broader softening in economic growth and hiring.
Temp help workers are the first group not to be hired when the job market turns weaker, said Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pennsylvania.
The fall-off in temporary hiring is just one of the tea leaves that hints at some weakening in the labor market.
The number of Americans working part time for economic reasons has risen, labor force growth has slowed sharply and the so-called quit rate, a gauge of workers' confidence to change jobs, is falling.
We're still creating lots of jobs. I don't think it's falling apart ... (but) I think it's come down a couple of notches from where it was a year ago and the temp help job decline is indicative of that and to some degree a leading indicator of that, Zandi said.
A drop in temporary employment presaged the 2001 recession. The number of temporary workers began to slip in the fourth quarter of 2000 and continued to decline through all of 2001, which was the worst year for temporary help services since the government began tracking the data.
The latest report on employment from the U.S. Labor Department showed the number of temporary workers employed dropped in July for a sixth straight month.
Economists say this year's decline is unlikely to be a harbinger of recession, although it does suggest the economy will see sluggish growth over the rest of the year.
After a weak start to the year, the U.S. economy expanded at a solid 3.4 percent annual pace in the second quarter. Economists, however, expect a sluggish second half.
A Reuters poll published on August 9 found economists look for growth to taper off to a more-subdued 2.4 percent pace in the third quarter and a 2.5 percent rate in the final three months of the year.
Economists say the evident weakening in the job market reflects a slowdown in hiring and not a pick-up in lay-offs.
In a report on job prospects released in mid-June, staffing services company Manpower Inc. said U.S. employers plan to maintain a cautious approach toward hiring.
The troubles in the housing sector have contributed to the steep decline in workers used on a temporary basis as fewer found work in sector-related areas such as manufacturing, mortgage finance and construction, Zandi said.
Employers in select industries are losing confidence about adding employees, including those in the construction, wholesale and retail trade, and in the finance, insurance and real estate sectors, said Jonas Prising, president of Manpower North America.