Weekly Economic & Business Outlook

Unemployment Trends Portend Difficult Decisions Ahead for the Fed

Last week the Federal Open Market Committee (FOMC) predictably elected to hold interest rates at current levels. Despite a concerning headline GDP estimate driven primarily by net exports, a deluge of positive labor market data suggested that consumers remain healthy enough to weather higher borrowing costs for a longer period of time. Holding interest rates higher for longer would allow the Federal Reserve to maintain pressure on inflation, especially as tariffs begin to factor into the prices of goods and services.

According to FOMC Chair Jerome Powell, the committee remains focused on the inflation-side of its dual mandate because “labor market (conditions) have remained solid”. Specifically, he noted that the unemployment rate has stayed low and trended in a narrow range over the past year. However, despite a particularly sanguine tone to his remarks, Powell did not elaborate on whether he or the committee at-large believed that unemployment would continue to hold.

Unfortunately, the probability unemployment continues to fluctuate in a narrow range is slim, while the probability that it shifts to the downside remains a strong possibility. Since the 1950s, unemployment has risen or fallen by more than 0.5 percentage points 92% of the time and declined by more than 0.5 percentage points 53% of the time. These odds have not improved with time. Since the 2000s, unemployment has risen or fallen by more than 0.5 percentage points 96% of the time, and declined by more than 0.5 percentage points 65% of the time

This means that based on historical probabilities, unemployment is not likely to remain trending in the narrow range of 3.9 to 4.2% as it has for the past year. Therefore, the Federal Reserve may not be able to keep interest rates elevated long-term without incurring some deterioration in the labor market. In other words, it will likely face some difficult decisions when determining how to maximize pressure on inflation while maintaining stability in the labor market.

The Staffing Industry Contracted in 2024: What Comes Next?

Over the course of 2024, the staffing industry employed an estimated 11.2 million temporary and contract workers, according to the ASA Staffing Employment and Sales Survey. These levels mirror annual levels seen between 2008 and 2012. While macroeconomic conditions are not as dire as then, current levels of staffing employment highlight the magnitude of the ongoing downturn which the staffing industry has faced over the past two years.

Temporary and contract staffing sales totaled close to $31 billion in the fourth quarter of 2024, down 10.4% year-to-year. Amid this downturn, the professional-managerial sector stood out as the only sector with positive median year-over-year growth, inching up by 0.1%. On the flipside, the health care sector saw the greatest decline in sales in 4Q2024 year-to-year, dropping by 22.2%. While the health care sector is still afflicted with widespread personnel shortages which normally would translate to demand for staffing services, the decline in revenue is in large part explained by many hospitals being hesitant to utilize outside staffing agencies as they look to avoid high bill rates to save on costs.

Curious about how the staffing industry started 2025? Get your benchmarks for the first quarter by registering for the ASA Staffing Employment and Sales Survey. The 1Q2025 survey is currently in the field but is scheduled to close on May 23. Survey participants receive a free, exclusive report of industry benchmarks that staffing organizations need to measure performance and strategically prepare for a year currently characterized by continued economic uncertainty.