In improving unemployment picture, temp job losses slow

Gabriel Torok, CEO of PreEmptive Solutions in Cleveland, was caught in a bind. Business seemed to be picking up, but he was "still a little uneasy" about whether the recovery was real.

So he hedged his bets by hiring three temporary programmers at PreEmptive, which helps clients protect their software.

That's how weak job markets typically start recovering — with an uptick in temp hiring.

Unfortunately for the economy, Torok was ahead of the curve. Employers cut another 6,500 temp jobs in August, leaving 1.74 million — the 19th straight monthly drop, the Bureau of Labor Statistics reported last week.

The economists at Deutsche Bank note that the temp market leads the overall labor market by three to six months; so the August figures suggest that the job market won't recover until sometime next year at the earliest.

Still, there are reasons to believe that "the worst is over," says Jeffrey Silber of BMO Capital Markets. Among them:

•Temp jobs are disappearing at a slower pace. The past four months, employers have shed 11,000 temp jobs a month, down from an average 69,000 the first four months of the year.

"Things are not getting better, but they're not getting worse," says George Corona, chief operating officer of Kelly Services.

•Temp wages rose to an average $14.12 an hour in July, up more than 4% from a year earlier.

•The American Staffing Association reported that demand for temporary and contract employees "increased markedly" from July to August.

•International Strategy & Investment, an investment firm, said its index of temp services companies rose in August to the highest level since October 2008.

As the economy begins to pull out of recession, the job market usually follows a well-trodden path to recovery, notes Jeff Joerres, CEO of Milwaukee-based staffing company Manpower.

First, productivity surges as employers squeeze more work out of smaller staffs. Bosses then schedule workers for more hours. Next, they turn to temps.

"Employers are always reluctant to add (full-time) people after a recession," says John Challenger, CEO of outplacement firm Challenger Gray & Christmas.

Finally, convinced that a full recovery is at hand, employers add full-time workers.

For now, the journey has just begun. Productivity surged at a 6.6% annual rate in the second quarter, highest in almost six years. But the average workweek was flat in August at 33.1 hours, temp jobs fell, and the overall labor market lost 216,000 jobs. And the jobless rate reached 9.7%, highest in 26 years.

Manpower's survey of 28,000 employers' fourth-quarter hiring plans, out Tuesday, revealed the worst outlook for jobs since the first quarter of 1982. "You have to characterize this as the most distressed market job seekers have seen," says Manpower's Joerres.