Over the past few decades, developments in the staffing industry have quickly been reflected in the overall US economy: growth in staffing corresponding to growth in overall employment and GDP. Downturns in staffing preceded each of the past three recessions, and economy watchers closely follow temporary help employment for signs of economic weakness. However, since October 2022, when temporary help employment began its ongoing downward trend, employment in temporary help services is down 226,300 (through November 2023) while overall payroll employment is up by nearly 3.1 million and real GDP growth has not only held up but recently accelerated. This divergence is clearly visible in the graph below.

Year-over-year percentage change in quarterly average temp help employment levels and GDP

Click image to enlarge.

Source: Staffing and the Business Cycle by SIA

This persistent divergence has spawned much consternation. Doesn’t such a decline in staffing mean the US economy is in or soon will be in recession?

In our recent report, Staffing and the Business Cycle, we reviewed data on temporary help services employment, US macroeconomic indicators and recessions from 1972 — the earliest date for which it is possible to assemble data on temporary help employment — through the present. In addition to presenting our findings, the report includes detail on how recessions are defined and identified and briefly discusses common recession indicators.

In short, the relationship between staffing and the macroeconomy has evolved over time as the occupations filled and client industries served have changed. As staffing firms continue to pursue new clients and skill sets, these relationships will continue to change — especially in light of the ongoing emphasis on professional staffing opportunities.

In the early days of the industry, when office and clerical roles were the primary — if not overwhelming majority — of positions filled, developments in staffing lagged the macroeconomy. With movement into production, transportation and material-moving occupations during the 1980s and 1990s, staffing became coincident with developments in the economy. As these roles became the majority of staffing activity, temporary help employment began to lead macroeconomic developments and became more cyclically volatile. The movement into the less-cyclically-sensitive professional occupations has already detectably reduced the sensitivity of temporary help employment to macroeconomic developments and, if continued, may eventually change the cyclical dynamics of the industry such that temporary help employment again becomes a coincident or lagging indicator.

While declines in temporary help employment preceded each of the last three US recessions, temporary help employment is not a reliable recession indicator. Rather, temporary help employment has experienced repeated downturns separate from recessions since 2000. Many of these divergences can be traced to developments within specific client verticals. In the present cycle, currently available data is not sufficient to conclusively identify causes of the divergence. However, a shift from external temporary staff to internal staff and ongoing labor hoarding appear to be primary drivers.

The direction of the macroeconomy is not always relevant to a specific industry or individual business. Even in expansions, on average more than 370,000 businesses close each quarter while some industries grow even through severe recessions. It is likely more productive to focus on how one’s business can plan for and manage sudden increases or decreases in demand than to study the economic tea leaves.