Logo Background RSS


US Labor Outlook: Possible Sharp Downturn in 2017

  • Written by Syndicated Publisher No Comments Comments
    October 14, 2016

    Here is how I view employment: When margins get squeezed and sales slow, one of the first ways businesses respond is by slowing down temp hiring. Then, as trends continue to worsen, businesses start to let go of their temp employees altogether while cutting hours on their full-time staff. Finally, if the slump continues, businesses must eventually resort to layoffs, which can lead to a recession.

    Here’s how we saw this play out in terms of temp jobs just before the last two recessions:

    sp500 us employees nonfarm payrolls

    Looking at the current backdrop, temp jobs are stalling again.

    sp500 index us temp stalling again

    Year-over-year, the growth rate in temp employment shows it turned negative before the last two recessions and it isn’t far off from doing that again.

    overall nonfarm payrolls y-o-y change

    Employers are already moving on to the next phase in the labor cycle by cutting back hours of full-time employees:

    us aggregate weekly hours private NSA year over year

    We have yet to see overall payroll growth turn south. It has slowed to only a 1.9% annual rate but that meager growth rate still rests near the highs of this and even the last cycle….BUT one of my favorite indicators for employment are bank lending standards for large and medium firms (shown inverted below in red). As banks tighten, payroll growth eventually begins to slow and the recent tightening we have seen suggests payroll growth takes a sharp turn south in 2017.

    nonfarm payrolls

    So, while the markets are holding in very well and oil is breaking out, I have a feeling we are still in for some rough waters ahead if these trends continue. On Friday we’ll receive the widely-watched nonfarm payroll report. Though I won’t try and predict which way it’ll move in the short-term, the message coming from temp jobs and bank tightening currently shows risks increasing for layoffs in the quarters ahead.

    We’ll be discussing our broader outlook in more detail at this month’s Investment Strategy Conference in San Diego, CA, which is free to the public. This year’s theme is “Approaching the Peak and the Next Financial Crisis.” If you would like to attend, click here for more information.

    All charts courtesy of Bloomberg

    CLICK HERE to subscribe to the free weekly Best of Financial Sense Newsletter .

    Images: via Flickr (licence attribution)

    About The Author – Chris Puplava, Financial Sense Online

    Chris graduated magna cum laude with a B.S. in Biochemistry from California Polytechnic State University, San Luis Obispo. He joined PFS Group in 2005 and is currently pursuing the designation of Chartered Financial Analyst. His professional designations include FINRA Series 7 and Series 66 Uniform Combined State Law Exam. He manages PFS Group’s Precious Metals Managed Account, Energy Managed Account, and Aggressive Growth Managed Account. Chris also contributes articles and Market Observations to Financial Sense and co-authors In the Know—a weekly communication for Jim Puplava’s clients only—with other members of the trading staff. Chris enjoys the outdoors.


Closed Comments are currently closed.