Using Temporary Workers to Forecast the PA Economy

A blog post by Sean Brandon, originally published at Third and State.

The employment services industry provides a variety of human resources services, including most notably supplying temporary workers to other businesses. Because of the unique characteristics of this industry, economists often use its job market trends as an economic forecasting tool. The reason is simple: When the economy starts to slide, the first workers to go are usually the temporary employees, but when the economy begins to pick up, businesses will hire temporary workers first.

Historically, the employment services industry has proved a reliable indicator of broader job market trends. Let’s consider the Great Recession as an example. In the past five years, the height of employment (a 12-month moving average of not-seasonally-adjusted employment data) in the employment services industry in Pennsylvania was in January 2008, just after the recession began. The employment services industry then shed 23,517 jobs before it reached its low point in December 2009.

On the other hand, total nonfarm employment in Pennsylvania did not reach its peak until September 2008, eight months after employment services peaked. Furthermore, total nonfarm employment did not begin to recover until April 2010, after employment services had seen steady growth for four months.

In the case of both the recession and the recovery, the employment pattern in the employment services industry foreshadowed what was going to happen to Pennsylvania’s job market as a whole.

So what are the statistics in Pennsylvania’s employment services industry suggesting now?

From September 2009 to September 2010, employment in the employment services industry grew by 9%. In the subsequent year, employment only grew by 7%. The trend has been job growth, but employment is increasing at a slower rate.

As of October, Pennsylvania’s job deficit, the number of jobs lost during the recession plus the number of jobs needed in order to keep pace with the state’s population growth, was over 240,000. In this hole, Pennsylvania needs to add 8,000 jobs each month in order to get back to full employment in three years.

Recently, the Pennsylvania Department of Labor and Industry reported that the number of jobs in the commonwealth grew by 13,800 in October. Relatively, October was a very good month for Pennsylvania. Previous months have seen weak private-sector job growth and continued public-sector job losses, resulting in net job losses. With the recent employment stagnation of the employment services industry, it is likely that October is an exception and that the coming months will yield more moderate job growth.