Employment Strength: Weaker Than Meets the Eye

Recent releases have highlighted apparent strength in the employment market, but digging deeper we find things may not be as rosy as they seem…

The ISM Services Purchasing Manager’s Index for December was released on Friday. Most notably, the Employment component of the Index plummeted, reaching levels not seen since the pandemic and the Great Financial Crisis. It contracted in December after six consecutive months of growth, and more than half of the industries included in the survey reported a decrease in employment.

The monthly Employment Situation Summary (or jobs report) for December came out on Friday as well. While the number of jobs added blew forecasts out of the water, data buried in the report merits a closer look. An interesting sub-component to look at is Temporary Help Services, which we featured in our February 2023 issue of InvesTech Research. Since then, this component has taken a dive. While this series has a short timeframe, it is clear that when fewer temp jobs are added, trouble is around the corner as temporary employees are typically the first to be cut. As of December, the number of temporary help jobs added has fallen to lower than pre-pandemic levels.

Lastly, the National Federation of Independent Businesses (NFIB) released their Small Business Optimism Index for December. Overall, the report was not much of a change and the headline Index still remains depressed. However, the Index has a number of components that better detail small businesses’ current situation. The December report showed that small businesses are once again less likely to hire in the near future – only 16% of respondents said they plan to hire in the next three months! This particular series can be volatile, but it’s important to note that short-term hiring plans haven’t truly improved over the last year or so.

Employment remains the economic stronghold, though a peek under the surface reveals that it’s weaker than meets the eye. As a result, it will be imperative to keep an eye on how the labor market continues to evolve in 2024.