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Temp Employment Pointing Toward Robust Payrolls

March 5th, 2010 Michael McDonough

Non-farm payrolls fell -36K, handily beating the latest consensus forecast of -68K. The unemployment rate was steady at 9.7%.  The market can expect some volatility from government census worker hirings over the months ahead.  The effect should be positive for the next couple months, but eventually turn negative as these workers are let go.

One of the bigger surprises in the report was a +1,000 increment in manufacturing payrolls, versus and expected decline of -15,000. Manufacturing’s is a much smaller portion of the U.S. economy compared to years past, but still holds much of the economy’s cyclicality.

Looking at temp employment, one of my favorite leading indicators toward payrolls, we can see a strong upward trend beginning in September 2008.  As the chart below illustrates, temp employment, the white line, began falling well before total payrolls, the white line,  during the recent economic crisis.  But, since September temp employment has begun to surge.  Temp employment growth could eventually lead to a jump in total payrolls, as companies who are optimistic, yet uncertain, about the future tend to hire temps before actually filling full time positions.  Temps are also the first employees to be let go as companies become pessimistic, yet uncertain, about the future.  284K temps have been hired since September’s low.

Total Payrolls (orange line) vs. Temp Employment (white line)

Source: Bloomberg

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