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James Pethokoukis echoes my concerns over last week’s November jobs report via a quote from David Rosenberg:

While it is abundantly clear that companies are near the end of the job downsizing phase, there is scant evidence of any renewal in the pace of new hiring. In fact, it is quite the contrary. This assertion is underscored by the fact that both the median (20.1 weeks) and the average (28.5 weeks) duration of unemployment hit new record highs last month. The share of the unemployed that has been looking for work without success for six months or longer also reached an unprecedented 59% last month. We are fairly certain that these folks will have a slightly different take on today’s employment number than the mainstream economics community. In addition, also keep in mind that the employment diffusion index, while improving in November, was still unacceptably low at 40.6. In other words, roughly 6 out of 10 businesses are still rationalizing their staff loads, even if at a less dramatic rate than in previous months.

The data certainly supports the conclusion that the rate of downsizing has declined dramatically since the bottom fell out of the market in late 2008/early 2009. However, it does not necessarily follow from this that we are about to enter into a period of job growth.

There comes a point at which most employers simply can’t cut anymore more full-time workers–there is only so much they can squeeze out of less employees. One might call this their human capital floor, the point the point at which any further decrease in employees leads to unacceptable decline in performance. One way that businesses are dealing with the trade-off between laying off workers and operational needs is to hire temporary staff. Businesses do not have to make the same kinds of investments (economic, temporal) in temporary workers as compared to full-time employees. Additionally, I can’t think of a time in recent history when you had more highly qualified workers in the temporary pool. One wonders how long businesses could decide to leverage this type of labor before committing to true job creation and growth.

Historically, temporary hires serve as a leading indicator for the hiring of full-time employees. Let’s hope that trend continues.

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