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How Much Runway Remains?

By Cynthia Poole and Steven P. Berchem, CSP
The 2016 ASA Staffing Industry Economic Analysis

How Much Runway Remains? While slowing, the staffing and recruiting industry continues to grow faster than jobs overall and the economy.


Editor’s note: This analysis, prepared September 2016, provides an overview of the size, scope, and dynamics of the U.S. staffing and recruiting industry. It is intended as a general reference for staffing companies, staffing clients, industry analysts, journalists, and policy makers. The analysis is also available on the ASA website at americanstaffing.net (click on Research & Data) as well as on ASA Digital at americanstaffing.net/digital, which offers interactive, page-turning replicas of select ASA publications.

“We’ve got lots of runway left!” That’s a declaration often made in casual conversations by confident business executives and economists. They are referring to the continued post-recession expansion of the U.S. economy. Now more than seven years old, the current expansion is 40% longer than the average of the growth periods since World War II. Dismal scientists (i.e., economists) unceasingly try—and fail—to predict recessions. Even though recessions are always on everyone’s economic horizon, enduring and painful contractions, when growth falls off a cliff, are not only impossible to predict, they are often undetected until the nation is in free fall.

The U.S. economy has slowed in 2016 and may not accelerate in the remainder of the calendar year as the nation ponders its political elections and the uncertain impact of a new administration and Congress in 2017 and beyond. Nonetheless, most economists expect the U.S. to power through the 2016 weakness and extend the current expansion for another two years or so. Staffing and recruiting sales are highly correlated with gross domestic product (GDP). As GDP expands, so does staffing and recruiting. As GDP contracts, so does staffing and recruiting. With weak GDP growth slowing staffing and recruiting sales, and with the probability of a recession increasing by the day (albeit only ever so slightly), professionals in this industry are wisely asking about how much runway remains. The answer is plenty, but not without risks. Success will require investment in innovation, strategic vision, and an understanding of economic and labor market trends, which include both a shrinking supply of and a softening of demand for that distinctly human resource: talent.

Economic Expansion

At 18 months, the Great Recession was the longest and most severe recession since World War II, considerably longer than the average of about 10 and a half months for the 10 prior post-war recessions. At its lowest point in fourth quarter 2008, real GDP had shrunk 5.1% from the start of the recession in December 2007. 1,2

Many economists expected a rapid and robust recovery from the Great Recession, like that of 1957 when real GDP declined 3.6% over eight months and fully recovered in four. Nonfarm employment (seasonally adjusted) returned to its prerecession peak in 20 months. 3

Instead, recovery from the Great Recession was slow and weak. Real GDP did not return to its pre-recession peak until 2013, three and a half years after the recession ended, and nonfarm employment did not recover its losses until 2015, taking almost six and a half years.

Since WWII, the average expansion has been just under five years. The longest expansion was 10 years. At more than seven years, the current expansion is the fourth longest in recorded history, which began in the mid-1850s (see Figure 1). 4 Some economists believe it could break the record of 10 years. 5

What are the prospects for continued economic growth?

GDP growth in the current expansion has been weak. Since the expansion began in July 2009, quarterly GDP has grown at an average annualized rate of 2.1%, well below the 2.8% rate of the 2002–07 expansion (see Figure 2) and significantly lower than the overall average annual rate of 3.4% since 1930, when the U.S. Department of Commerce first began tracking GDP. 6

In 2015, quarterly GDP growth estimates averaged 1.9%, including a marked slowdown to 0.9% in the fourth quarter. That pace continued into 2016 with the U.S. Bureau of Economic Analysis estimating growth at 0.8% in the first quarter and 1.1% in the second. 7

The deceleration led economists to substantially lower their full year GDP projections for 2016. From September 2015 through March 2016, economists surveyed monthly by the Wall Street Journal had
projected annual GDP growth for 2016 in a range from 2.3% to 2.7%. 8 But in April through August 2016, their average GDP forecasts dropped, ranging between 1.8% and 2.1%. 9

In the September 2016 Wall Street Journal survey of economists, their average annual GDP forecast for the year was 1.8%. 10 If they’re correct, that would set the current economic expansion at 2.2 percentage points below the average 4.0% annual growth rate of the prior six expansions from 1960 to 2007. 11

Those same economists are more bullish about 2017, with consensus projections for full-year GDP growth at 2.2%. If they turn out to be correct, that would be about average for the current expansion. And it would push the current expansion into its ninth year—further along the path to becoming the longest expansion ever.

The current expansion may be weak, but it has “more running room,” Federal Reserve chairman Janet Yellen said in her remarks after the September meeting of the Federal Open Market Committee, which
determines monetary policy and sets interest rates. 12 “Growth of economic activity has picked up from the modest pace seen in the first half of this year,” the committee said in a statement, and “the labor market has continued to strengthen.” 13


Figure 1: At 86 Months and Counting, the Current U.S. Economic Expansion Could Become the Longest Ever.
Fig. 01


Labor Market
In comments during and after the September meeting, Yellen and the FOMC noted that the unemployment rate remained low and job gains had been solid, perhaps signaling that job seekers are coming off the sidelines and preventing the labor market from overheating. 14

Unemployment
In the most commonly cited measure of the unemployment rate, the U.S. Bureau of Labor Statistics counts a person as unemployed if he or she does not have a job, has actively looked for work in the
past four weeks, and is currently available for work. 15

After reaching a high of 10.0% in October 2009, the unemployment rate declined to 4.7% in May 201616—the lowest rate in more than eight years, even lower than the 5.0% rate at the start of the recession (see Figure 3).


Figure 2: GDP Growth Has Been Weak—Below the Prerecession Average. Will Growth Accelerate as Forecast?
Fig. 02


Figure 3: The Unemployment Rate Declined to 4.7% in May 2016—Lower Than the 5% Rate at the Start of the Recession.
Fig. 03


Recently the decline in the unemployment rate has been driven by a persistent reduction in layoffs, as evidenced by a decrease in the number of initial claims for unemployment benefits. The four-week average of initial claims dropped from 349,000 in December 201317 to 256,000 in April 2016—the lowest level in more than 40 years. 18

Similarly, recipients of jobless benefits fell from a four-week average of 2.9 million at the end of December 2013 to 2.1 million in July 2016—the smallest number since November 2000. 19

While the most commonly cited measure of unemployment (the so-called U-3 rate) suggests a shrinking supply and tightening labor market, the broadest measure of unemployment remains stubbornly
at pre-recession levels. That broader figure is the U-6 rate, which is considered by many economists as a more accurate portrayal of the employment situation.

The U-6 rate is defined as all unemployed as well as “persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the labor force.” That means the unemployed, the underemployed, and the discouraged.

The U-6 rate has been slowly improving since 2010. It’s been mostly flat, averaging 9.7% in 2016, the lowest since rate since 2008. 20

If in fact U-6 is a more accurate portrayal of unemployment, it indicates that the jobless workforce is twice as big as the headline numbers. Perhaps, as Yellen seems to allude, labor markets are improving to the point where discouraged job seekers are returning to the workforce, expanding supply.

But do they have skills that are in demand? Nearly six million jobs continue to go unfilled—a record high since that metric was first reported in December 200021—which has resulted in an ongoing drag on the economy. Many business leaders say there is a skills gap and that they cannot find qualified workers.

Meanwhile, though changes in the makeup of the workforce suggest that even further declines in the unemployment rate may be possible: fewer people may be working and fewer people may seek work.

Labor Force Participation
Labor force growth is an important contributor to overall economic growth. 22

The U.S. labor force—the number of people working as well as those looking for work—has experienced significant shifts in size and demographic composition, especially since World War II. 23 For example, the proportion of women in the labor force rose, peaking in 1999.

But then women withdrew from the labor force. Population growth slowed in the first decade of the 21st century. And large numbers of Baby Boomers began to retire and exit the workforce. These have
all contributed to labor force declines.

As the demographic trends that previously expanded the labor force now reverse, they have become factors in dampening economic expansion and GDP growth. 24

The labor force participation rate—the proportion of the population 16 years of age or older either employed or seeking a job—peaked at 67.3% from January through April 2000. Since then, the participation rate has declined. It was 62.4% in September 2015—the lowest since October 1977. It improved a percentage point in 2016, to 63.4% in July, then dropped half a point in August. 25 (See Figure 4.)


Figure 4: Labor Force Participation Ticked Up Slightly After a Slow Descent. Where Will the Labor Force Participation Rate Land?
Fig. 04


The U.S. Congressional Budget Office projects in its budget outlook that the labor force participation rate will fall to 61.5% by 2020. 26 More Baby Boomers will retire and greater numbers of job seekers will drop out of the workforce altogether. And, CBO notes, aspects of federal policies and the tax code reduce individuals’ incentives to work or seek work, and businesses’ incentives to hire. (See “Where Have the Workers Gone?” on page 34 for more about labor force participation trends.)

As the supply of talent dwindles, employers—including staffing companies—will need to continue to improve efficiency, increase productivity, and develop effective recruiting and retention strategies.

Staffing Employment
Historically, staffing employment has been a coincident economic indicator and a leading employment indicator. 27 In other words, staffing employment rises and falls along with the overall economy as measured by GDP. And staffing employment rises and falls about six months ahead of similar changes in overall employment.

The ASA Staffing Index provides a near real-time gauge of staffing industry employment and overall economic activity. It tracks weekly trends in temporary and contract employment, with results reported nine days after the close of a workweek (see “Methodology of ASA Economic Surveys” on page 20).

The index was set at 100 when it was publicly launched June 12, 2006. Weekly percentage changes in temporary and contact employment are reflected in the index, allowing observers to easily see how staffing employment has changed over time. For example, the index troughed at 66 in midsummer 2009, as the Great Recession ended, indicating that staffing employment had fallen about 34% from its level in mid-June 2006. The index rose to a record high of 106 in December 2014—eclipsing the previous peak of 105 at the end of November 2007 (see Figure 5).

The index reflected continued year-to-year growth in early 2015, with record highs for 19 of the first 20 weeks. Growth moderated somewhat in the second quarter, dipped in the summer, and resumed upward momentum in the fall. Temporary and contract employment leveled at the beginning of 2016 (see Figure 5), consistent with weak GDP growth.

Since the recovery began in July 2009, staffing employment has been growing more than two times faster than the economy and just over six times more rapidly than overall employment.

The quarterly ASA Staffing Employment and Sales Survey showed staffing employment in the U.S. exceeded prerecession levels and recorded a new high in 2015: 3.2 million temporary and contract jobs in an average week that year, rising from a recession low of 2.2 million jobs per week in 2009 (see Figure 6). Staffing firms hired 2.7% more temporary and contract employees on an average weekly
basis in 2015 than in 2014. 28


Figure 5: After Falling to a Record Low in Midsummer 2009, the ASA Staffing Index Reached a Record High in December 2014 and Remained Strong in the First 20 Weeks of 2015.
Fig. 05


Figure 6: U.S. Staffing Firm Jobs Reached a Record High in 2015, Rising to a Weekly Average of 3.22 Million From a Recession Low of 2.16 Million in 2009.
Fig. 06


The quarterly ASA Staffing Employment and Sales Survey is also used to determine annual employment in the staffing industry. ASA collects data on the total number of Forms W-2 issued annually to temporary and contract employees by the staffing firms that participate in the survey. Based on those data, ASA estimates the total number of temporary and contract employees who have worked in the staffing industry for any period of time during the calendar year.

Over the course of 2015, U.S. staffing firms hired a total of 15.6 million temporary and contract employees, up 8% from 14.4 million in 2014, and the greatest number of staffing employees in any year since 2000 (see Figure 7). 29

Staffing and Recruiting Sales Increased 5.4% in 2015 to $147 Billion
Temporary and contract staffing sales totaled $126.4 billion in 2015, according to the quarterly ASA Staffing Employment and Sales Survey—an increase of 4.1% from 2014. 30

Search and placement sales grew 14.0% in 2015, according to Staffing Industry Analysts. Applying SIA’s yearly growth estimates to the most recent (2012) U.S. Economic Census benchmark shows that search and placement sales totaled $20.6 billion in 2015. 31

U.S. staffing industry sales set a new annual record at $147.0 billion in 2015—5.4% higher than in 2014. Staffing industry sales comprise temporary and contract services in addition to search and placement services (which accounted for 14.0% of total staffing and recruiting industry sales in 2014).

SIA forecasts U.S. temporary and contract staffing sales will grow 4% in both 2016 and 2017; search and placement sales are expected to increase 8% in 2016 and 5% in 2017. 32

According to SIA, temporary and contract staffing in health care will grow 13% in 2016, driven by more insured patients and greater turnover among health care workers. Finance and accounting will grow 7% and information technology will decelerate to 5% in 2016. Industrial sector growth will slow to 2% due to decreased demand for energy workers. Office-clerical demand will decline 2% as will engineering (because of weak demand for oil and gas services). 33

Annual Sales Totals for the Staffing and Recruiting industry

Total Staffing and Recruiting Industry Sales—Including Temporary and Contract, and Search and Placement—Increased 5.4% to $147 Billion in 2015..



Figure 7: U.S. Staffing Firms Hired a Total of 15.6 Million Temporary and Contract Employees During 2015—the Highest Since 2000.
Fig. 07


Turnover and Tenure
Although average weekly and annual staffing employment increased in 2015, temporary and contract employees worked fewer days on average, and this shorter tenure resulted in higher employee turnover.

Turnover is the rate at which incoming employees replace outgoing employees over the course of a year. It is calculated using average weekly employment and the number of annual Forms W-2. Turnover is considerably higher in the staffing industry than other industries because most staffing employees work for their staffing firms for relatively short periods.

Temporary and contract employee turnover has averaged 323% during the current expansion period. In 2015, staffing employee turnover rose to 383%, up from 359% in 2014 (see Figure 8).

Temporary and contract employee tenure has gradually increased in the two decades over which ASA has been tracking it, generally adding a day or two per year. It was averaging 12.5 weeks (about three months) in the current economic cycle. In 2015, average staffing employee tenure declined to 10.8 weeks—about 2.5 months (See Figure 8).

Anecdotal evidence suggests that the shorter tenure can be attributed in large part to more temporary and contract employees bridging to permanent jobs.


Figure 8: The Average Staffing Employee Works About Two and a Half Months. In 2015 Staffing Employee Turnover Increased to 383% and Tenure Decreased to 10.8 Weeks.
Fig. 08


Penetration Rate
Temporary help services have accounted for 9% of net nonfarm employment gains from the end of the recession to August 2016, according to BLS.33 But rather than net gains over multiple years, a better measure of the staffing industry is the penetration rate: temporary help services employment as a percentage of the total nonfarm workforce.

Until 2015, the staffing industry’s longstanding peak penetration rate had been 2.03%, set in April 2000 (see Figure 9). It didn’t stay there long. In December 2001, at the end of that year’s recession, the penetration rate had dropped to 1.64%. It then rose to 1.95% in November 2005, near the apex of the economic expansion that preceded the Great Recession.

After losing nearly a million jobs during the Great Recession, the temporary help penetration rate sank to 1.34% in summer 2009. Eventually staffing employment more than recovered its job losses and the penetration rate edged up to a new record of 2.06% in December 2015 (see Figure 9). It has since hovered at or above 2.0%.


Figure 9: The Staffing Penetration Rate Edged Up to a New High in 2015.
Fig. 09


Future Growth
BLS projects overall employment growth will be better over the next 10 years than it was in the last 10. But the jobs mix will change as the structure of the economy changes.

Employment growth in the goods-producing sectors will be driven by construction, although construction is unlikely to reach its prerecession levels over the next decade. Meanwhile, manufacturing employment is projected to continue to decline. 34

Eight out of 10 jobs in the economy will be in services. One third of new jobs will be in health care. And the professional and business services sector, which includes employment services, will continue to expand. 35

BLS projects that staffing employment will grow faster than overall employment, with staffing expected to add more jobs than most other industries.

Consistent with historical trends, the staffing and recruiting industry grew twice as fast as the economy in 2015 (5.4% versus 2.6%, respectively). The industry is on track to grow nearly two
and a half times faster than the economy in 2016.

With economists—including those on Wall Street and at the Federal Reserve—anticipating a stronger end to 2016 and a more robust 2017, the staffing, recruiting, and workforce solutions industry can
expect increased demand for talent.

Meeting that demand will be a challenge if workforce participation continues to weaken, as expected. But that demand also affords numerous opportunities for job seekers looking for temporary, contract, and permanent employment.

There is plenty of runway remaining, especially for those clever enough to find ways to efficiently close the gap between talent supply and demand.

Learn more about ASA’s economic survey methodology »


Cynthia Poole is director of research for the American Staffing Association. Steven P. Berchem, CSP, is chief operating officer for ASA and oversees the association’s research program. Send feedback on this article to success@americanstaffing.net. Follow ASA on Twitter @StaffingTweets.

  1. Federal Reserve Bank of Minneapolis, “The Recession and Recovery in Perspective,” minneapolisfed.org/publications/special-studies/rip/recession-in-perspective, Sept. 1, 2016.
  2. National Bureau of Economic Research, Business Cycle Dating Committee, announcementof June 2009 as the end of the recession that began in December 2007, Sept. 20, 2010.
  3. Ibid 1.
  4. National Bureau of Economic Research, “U.S. Business Cycle Expansions and Contractions,”
    nber.org/cycles.html, Sept. 1, 2016.
  5. Jeffry Bartash, “Current U.S. Economic Recovery May End Up as Longest Ever,” Market-Watch, July 19, 2016.
  6. U.S. Bureau of Economic Analysis, Real Gross Domestic Product [A191RL1A225NBEA], retrieved from FRED, Federal Reserve Bank of St. Louis, research.stlouisfed.org/fred2/series/A191RL1A225NBEA/, Sept. 1, 2016.
  7. U.S. Bureau of Economic Analysis news release, “Gross Domestic Product: Second Quarter 2016 (Second Estimate),” Aug. 26, 2016.
  8. Economic Forecasting Survey: September 2016, Wall Street Journal, wsj.com, Sept. 8, 2016.
  9. Ibid.
  10. Ibid 8.
  11. Jason Furman, Prepared Remarks for Economic Policy Conference, “Questions and Answers: The Economic Recovery and the Path Forward,” National Association for Business Economics, March 10, 2015.
  12. Jon Hilsenrath and David Harrison, “Fed Stands Pat, but Says Case for Rate Increase Has Strengthened,” Wall Street Journal, Sept. 22, 2016.
  13. Federal Open Market Committee Meeting Statement, News Release, Sept. 21, 2016.
  14. Ibid 12.
  15. U.S. Bureau of Labor Statistics, “How the Government Measures Unemployment,” Current Population Survey Technical Documentation, bls.gov/cps/cps_htgm.htm, Oct. 8, 2015.
  16. U.S. Bureau of Labor Statistics, Civilian Unemployment Rate [UNRATE], retrieved from
    FRED, Federal Reserve Bank of St. Louis, research.stlouisfed.org/fred2/series/UNRATE/, Sept. 1, 2016.
  17. U.S. Employment and Training Administration, Four-Week Moving Average of Initial Claims [IC4WSA], retrieved from FRED, Federal Reserve Bank of St. Louis, research.stlouisfed.org/fred2/series/IC4WSA/, Sept. 14, 2016.
  18. U.S. Employment and Training Administration, Initial Claims [ICSA], retrieved from FRED, Federal Reserve Bank of St. Louis research.stlouisfed.org/fred2/series/ICSA/, Sept. 14, 2016.
  19. U.S. Department of Labor, Unemployment Insurance Weekly Claims data, retrieved from oui.doleta.gov/unemploy/claims.asp, Sept. 14, 2016.
  20. U.S. Department of Labor, Bureau of Labor Statistics, “Current Population Survey,” Web Site Public Data Query, Series ID: LNS13327709, Sept. 26, 2016.
  21. U.S. Bureau of Labor Statistics, Job Openings: Total Nonfarm [JTSJOL], retrieved from FRED, Federal Reserve Bank of St. Louis, research.stlouisfed.org/fred2/series/JTSJOL/, Sept. 26, 2016.
  22. Mitra Toossi, “Labor Force Projections to 2022: The Labor Force Participation Rate Continues to Fall,” Monthly Labor Review, U.S. Department of Labor, December 2013.
  23. Ibid.
  24. Ibid 6.
  25. U.S. Bureau of Labor Statistics, Civilian Labor Force Participation Rate [CIVPART], retrieved from FRED, Federal Reserve Bank of St. Louis, research.stlouisfed.org/fred2/series/
    CIVPART/
    , Sept. 2, 2016.
  26. Congressional Budget Office, “An Update to the Budget and Economic Outlook: 2016 to 2026,” August 2016.
  27. Steven P. Berchem, “Staffing Jobs as Economic Employment Indicators,” American Staffing Association, June 2009.
  28. American Staffing Association, Quarterly ASA Staffing Employment and Sales Survey, public data available online at americanstaffing.net; click on Research & Data.
  29. Ibid.
  30. Ibid 28.
  31. Staffing Industry Analysts, “U.S. Staffing Industry Forecast, April 2016 Update,” April 6, 2016.
  32. Staffing Industry Analysts, “U.S. Staffing Industry Forecast, September 2016 Update,” Sept. 13, 2016.
  33. U.S. Department of Labor, Bureau of Labor Statistics, “Employment, Hours, and Earnings From the Current Employment Statistics Survey (National),” Web Site Public Data Query, Series ID: CES0000000001 and Series ID: CES6056132001, Sept. 2, 2016.
  34. Richard Henderson, “Industry Employment and Output Projections to 2024,” U.S. Bureau of Labor Statistics, December 2015.
  35. Ibid.
  36. U.S. Department of Labor, Bureau of Labor Statistics news release, “The Employment Situation—December 2015,” Jan. 8, 2016.
  37. Ibid 28.

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