As orders from food makers have picked up during the past year,Create-A-Pack Foods Inc. turned to a staffing company, KellyServices Inc., to add about 100 workers.

Hiring on a temporary basis saves money if an employee doesn'twork out and expands recruiting beyond Create-A-Pack's Ixonia,Wisconsin, headquarters, Chief Executive Officer Glenn Cochranesaid.

“You can build good crews with temp services,” he said, notingthat the company — which packages products including sauces andicings in pouches, bottles and jars — is seeking to fill another 28positions.

Create-A-Pack is among a growing number of businesses turning tostaffing companies for temporary workers, reflecting employerconcern about the U.S. economic outlook. The number of people onthe payrolls of temp-staffing businesses grew 10.7 percent in Juneto 2.5 million from a year earlier, the biggest increase since May2011, based on data from the Labor Department.

Demand for temporary employees is gaining momentum as companiesseek more flexible staffing arrangements, according to TobeySommer, director of equity research in Nashville at SunTrustRobinson Humphrey Inc. This has helped create a shift within thelabor force, as a “not-easily-forgotten recession” has made manyexecutives cautious about hiring, he said.

A so-called flex supercycle is driving business for Kforce Inc.,as a “historically disproportionate” share of new jobs is comingfrom the temporary-staffing industry, said Michael Blackman, chiefcorporate development officer for the Tampa, Florida-based company.A shortage of highly skilled candidates in fields such asinformation technology and “extraordinary uncertainty amongemployers is leading them to utilize temp resources,” he said.

The hiring environment reflects employer apprehension aboutcosts associated with the health-care law upheld by the U.S.Supreme Court last month and future tax and regulatory policies, aswell as economic risk from the federal budget deficit andrecessions in Europe, Sommer said.

This is causing many customers of Kelly Services to use tempworkers instead of expanding permanent headcount, said Carl Camden,president and chief executive officer of the Troy, Michigan-basedcompany.

This trend was pointed out by the Federal Reserve, which notedthat some of its contacts have “become more cautious in theirhiring and investment decisions,” according to the minutes of itsJune policy meeting released July 11.

No Foreshadowing

While hiring among temp workers has historically foreshadowedgains in the broader job market, this time may be different ascompanies rely on temporary staff for a longer time, said Kforce'sBlackman.

Employers are “looking for the minimum amount of expenditure onlabor, the minimum amount of new hires you have to make to meet thepretty anemic GDP growth that we have right now,” Camden said.

U.S. gross domestic product rose 1.9 percent in the firstquarter, after expanding 3 percent in the period ended Dec. 31.Second-quarter GDP slowed to 1.5 percent, based on the medianestimate of economists surveyed by Bloomberg News.

Increasing demand may boost staffing companies' financialresults. Total revenue from continuing operations at Kforce willrise about 1 percent to $276.6 million in the period ended June 30from a year ago, based on the consensus estimate of analystssurveyed by Bloomberg. Kforce is scheduled to report second-quarter earnings on July 31, with ManpowerGroup on July 20 andKelly Services Aug. 10.

The Bloomberg U.S. Employment Services Index — which includesthese companies and 15 others — has risen 3.3 percent so far thisyear, compared with the Russell 2000 Index's 7.9 percent gain.

Investor Jack Ablin at Harris Private Bank in Chicago will belooking for “bellwethers” in the earnings reports about the healthof the labor market, he said. These data are “another way totriangulate” information released by the government, which showsthat even though employers are opting for temporary help, at leastthey aren't downsizing, he said.

The number of hours worked by Kforce temporary staffers is agood proxy for this type of hiring, Sommer said. The total was up3.4 percent to about 4.4 million hours in the three months endedMarch 31 from the prior quarter, he said, adding that a similarincrease in the second quarter, after accounting for the number ofbilling days, “would demonstrate robust demand.”

Demand Indicator

Robert Half International Inc.'s temporary-staffing business —comprised of its Accountemps, OfficeTeam, Robert Half Technologyand Robert Half Management Resources divisions — also is anindicator of demand, Sommer said. If temporary- staff revenue wereto grow more than 10 percent in the first three weeks of July —which the Menlo Park, California-based company tends to provide onits earnings conference call — this “would be a win, given 9percent expected revenue growth in the third quarter,” he said.

The portion of temporary workers relative to all employees onnonfarm payrolls — the so-called temp-penetration rate — was 1.9percent in June, the highest in five years, Labor Department datashow. That's close to a pre-recession peak of 1.96 in November2005, said Sommer, who forecasts the ratio will return to thislevel by January 2013.

Republicans have attacked President Barack Obama's handling ofthe economy as part of campaigning for the November election, withemphasis on persistently high unemployment. Employers added 80,000jobs in June, the fourth straight month that gains trailed themedian estimate of economists surveyed by Bloomberg News. Payrollsin the temp-staffing industry expanded 25,200 last month, comparedwith a loss of 7,700 a year ago.

If demand remains sluggish and employer concerns about theeconomic and business climate worsen, companies may be forced tocurtail temporary hiring. The unemployment rate remained at 8.2percent in June — marking 41 consecutive months above 8 percent —as the total number of Americans on nonfarm payrolls lagged aJanuary 2008 peak by more than 4.9 million.

For now, companies are focused on remaining agile, according toJeffrey Joerres, chief executive officer of Milwaukee-basedManpowerGroup. There are “a lot of bad consequences when you gettoo bold without looking at these risks.”

Project Assignments

The same principles for other supply chains — like just- in-timepractices — also can be applied to talent, said Teresa Carroll,senior vice president for Kelly Services.

“More and more work is being done on a project basis” with anemployee having a job for the duration of the assignment, shesaid.

By turning to Kelly Services, Create-A-Pack reduced the amountof time it takes to get people on the floor of its facility tobetween one and four weeks compared with as many as 10 weeks,Cochrane said.

While temporary work isn't always a job seekers' first choice,Kimberly Smith, 43, said she would take this type of position as abridge to a permanent post with higher pay and benefits.

“It is a good thing because at least you get your foot in thedoor and get a job,” said Smith, of Riverdale, Georgia, who's beenunemployed for a year after losing a job at a check-cashingcompany. “One you are there a period of time, if you are good, theywill keep you.”

Small companies aren't the only ones using temporary labor.Caterpillar Inc., the largest maker of construction and miningequipment, had 28,472 so-called flexible workers as of March 31,representing about 18 percent of total employment, according todata from the Peoria, Illinois-based company.

ManpowerGroup's Joerres hears a familiar theme “again and again”from customers: Until they have more information, executives aredelaying hiring, he said. Otherwise, they say, “I'm going to becaught with too many people and it's painful, it's expensive, ithurts morale.”

Bloomberg News

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.