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The number of temporary help services jobs in the US fell by 14,100 in May to 2.73 million, the US Bureau of Labor Statistics reported today. The temp penetration rate — temp jobs as a percent of total nonfarm employment — fell to 1.72% in May from 1.73% in April, continuing a downward trend.
On the other hand, total nonfarm employment rose by 272,000 jobs in May.
“May appears to have been another month of positive growth in the US economy and labor market, although demand for temporary staffing remains soft,” Timothy Landhuis, VP of research at SIA, said. “We note that modest recent monthly job increases in manufacturing and transportation could be early signs of a return to growth for the cyclical sectors of the economy that have traditionally been among the largest buyers of staffing.”
Manufacturing added 8,000 jobs in May, and transportation and warehousing added 10,600.
The BLS noted that areas of job growth in May included healthcare, government, and leisure and hospitality.
- Healthcare added 68,000 jobs, in line with its average monthly growth of 64,000 over the prior 12 months. Employment was up in ambulatory healthcare services with an increase of 43,000.
- Government employment rose by 43,000.
- Leisure and hospitality added 42,000 jobs in May, similar to the average monthly gain of 35,000 over the prior 12 months.
- Professional, scientific, and technical services added 32,000 jobs in May, higher than the average monthly gain of 19,000 over the prior 12 months.
The US unemployment rate edged upward to 4.0% in May from 3.9% in April. However, the college-level unemployment rate fell to 2.1% in May from 2.2% in April.
Average hourly earnings for all employees on nonfarm private payrolls rose by 14 cents to $34.91, an increase of 0.4% compared to the average increase of 4.1% over the past 12 months.
CONFLICTING SIGNALS
New vehicles sold in the U.S. will have to average about 38 miles per gallon of gasoline in 2031 in real-world driving, up from about 29 mpg this year, under new federal rules unveiled Friday by the Biden administration.
The final rule will increase fuel economy by 2% per year for model years 2027 to 2031 for passenger cars, while SUVs and other light trucks will increase by 2% per year for model years 2029 to 2031, according to requirements released by the National Highway Traffic Safety Administration.
The final figures are below a proposal released last year. Administration officials said the less stringent requirements will allow the auto industry flexibility to focus on electric vehicles, adding that higher gas-mileage requirements would have imposed significant costs on consumers without sufficient fuel savings to offset them.
President Joe Biden has set a goal that half all of new vehicles sold in the U.S. in 2030 are electric, part of his push to fight climate change. Gasoline-powered vehicles make up the largest single source of U.S. greenhouse gas emissions.
The 50% sales figure would be a huge increase over current EV sales, which accounted for 7.6% of new vehicle sales last year.
Even as he promotes EVs, Biden needs cooperation from the auto industry and political support from auto workers, a key political voting bloc, as the Democratic president seeks reelection in November. The United Auto Workers union has endorsed Biden but has said it wants to make sure the transition to electric vehicles does not cause job losses and that the industry pays top wages to workers who build EVs and batteries.
Biden’s likely opponent, former President Donald Trump, and other Republicans have denounced Biden’s push for EVs as unfair for consumers and an example of government overreach.
The new standards will save almost 70 billion gallons of gasoline through 2050, preventing more than 710 million metric tons of carbon dioxide emissions by midcentury, the Biden administration said.
“Not only will these new standards save Americans money at the pump every time they fill up, they will also decrease harmful pollution and make America less reliant on foreign oil,” Transportation Secretary Pete Buttigieg said in a statement. “These standards will save car owners more than $600 in gasoline costs over the lifetime of their vehicle.”
The highway safety agency said it has sought to line up its regulations so they match new Environmental Protection Agency rules that tighten standards for tailpipe emissions. But if there are discrepancies, automakers likely will have to follow the most stringent regulation.
In the byzantine world of government regulation, both agencies essentially are responsible for setting fuel economy requirements since the fastest way to reduce greenhouse emissions is to burn less gasoline.
Fuel economy figures used by The Associated Press reflect real-world driving conditions that include factors such as wind resistance, hills, and the use of air-conditioning. Because of those factors, the real-world numbers are lower than the mileage figures put forward by NHTSA.
New passenger cars would have to average nearly 49 miles per gallon in 2031 under the new rule, up from about 36.5 miles per gallon this year.
“These new fuel economy standards will save our nation billions of dollars, help reduce our dependence on fossil fuels, and make our air cleaner for everyone,’' said NHTSA Deputy Administrator Sophie Shulman.
John Bozzella, president and CEO of the Alliance for Automotive Innovation, a leading industry group, said the Biden administration “appears to have landed on a CAFE rule that works with the other recent federal tailpipe rules.’' Bozzella was using an acronym for the fuel standards, which are officially known as the corporate average fuel economy rules.
Dan Becker at the Center for Biological Diversity, an environmental group, slammed the new rules as inadequate.
The highway safety agency is supposed to set strong standards for gas-powered vehicles, he said, “but instead it sat on its tailpipes, leaving automakers free to make cars, SUVs, and pickups that will guzzle and pollute for decades to come and keep America stuck on oil.’'
The administration “caved to automaker pressure, with a weak rule requiring only a 2% improvement’’ per year in fuel economy, Becker said, adding that the rule falls short of the agency’s own requirement to set fuel-economy standards at the maximum technologically feasible level.
Bozzella, the industry official, said the government soon might need to reconsider whether the fuel-economy standards are needed “in a world rapidly moving toward electrification” of the vehicle fleet.
The mileage standards are “a relic of the 1970s,″ Bozzella said, “a policy to promote energy conservation and energy independence by making internal combustion vehicles more efficient. But those vehicles are already very efficient. And EVs don’t combust anything. They don’t even have a tailpipe.″
Chris Harto, senior policy analyst for Consumer Reports, said the NHTSA rules were not strong enough to pressure automakers to ensure new vehicles are as efficient as possible.
“Today the administration is merely checking the box on the legal requirement’’ to set fuel-economy standards, he said, adding that NHTSA is hamstrung by statutory limitations that prevent it from explicitly considering EVs in setting mileage standards.
“It’s likely that this important consumer protection program will become increasingly irrelevant as EV sales continue to grow,’' Harto said.
They are called zombies, companies so laden with debt that they are just stumbling by on the brink of survival, barely able to pay even the interest on their loans, and often just a bad business hit away from dying off for good.
An Associated Press analysis found their numbers have soared to nearly 7,000 publicly traded companies around the world — 2,000 in the United States alone — whiplashed by years of piling up cheap debt followed by stubborn inflation that has pushed borrowing costs to decade highs.
And now many of these mostly small and mid-sized walking wounded could soon be facing their day of reckoning, with due dates looming on hundreds of billions of dollars of loans they may not be able to pay back.
“They’re going to get crushed,” Valens Securities Managing Director Robert Spivey said of the weakest zombies.
Added Miami investor Mark Spitznagel, who famously bet against stocks before the last two crashes: “The clock is ticking.”
Zombies are commonly defined as companies that have failed to make enough money from operations in the past three years to pay even the interest on their loans. AP’s analysis found their ranks in raw numbers have jumped over the past decade by a third or more in Australia, Canada, Japan, South Korea, the United Kingdom, and the U.S., including companies that run Carnival Cruise Line, JetBlue Airways, Wayfair, Peloton, Italy’s Telecom Italia and British soccer giant Manchester United.
To be sure, the number of companies, in general, has increased over the past decade, making comparisons difficult, but even limiting the analysis to companies that existed a decade ago, zombies have jumped nearly 30%.
They include utilities, food producers, tech companies, owners of hospitals and nursing home chains whose weak finances hobbled their responses in the pandemic, and real estate firms struggling with half-empty office buildings in the heart of major cities.
As the number of zombies has grown, so too has the potential damage if they are forced to file for bankruptcy or close their doors permanently. Companies in the AP’s analysis employ at least 130 million people in a dozen countries.
Already, the number of U.S. companies going bankrupt has hit a 14-year high, a surge expected in a recession, not an expansion. Corporate bankruptcies have also recently hit highs of nearly a decade or more in Canada, the U.K., France, and Spain.
Some experts say zombies may be able to avoid layoffs, selloffs of business units, or collapse if central banks cut interest rates, which the European Central Bank began doing this week, though scattered defaults and bankruptcies could still drag on the economy. Others think the pandemic inflated the ranks of zombies and the impact is temporary.
“Revenue went down or didn’t grow as much as projected, but that doesn’t mean they are all about to go bust,” said Martin Fridson, CEO of research firm FridsonVision High Yield Strategy.
For its part, Wall Street isn’t panicking. Investors have been buying stock of some zombies and their “junk bonds,” loans rating agencies deem most at risk of default. While that may help zombies raise cash in the short term, investors pouring money into these securities and pushing up their prices could eventually face heavy losses.
“We have people gambling in the public markets at an unprecedented level,” said David Trainer, head of New Constructs, an investment research group that tracks the cash drain on zombies. “They don’t see risk.”
WARNING SIGNS
Credit rating agencies and economists warned about the dangers of companies piling on debt for years as interest rates fell but got a big push when central banks around the world cut benchmark rates to near zero in the 2009 financial crisis and then again in the 2020-21 pandemic.
It was a giant, unprecedented experiment designed to spark a borrowing binge that would help avert a worldwide depression. It also created what some economists saw as a credit bubble that spread far beyond zombies, with low rates that also enticed heavy borrowing by governments, consumers, and bigger, healthier companies.
The difference for many zombies is they lack deep cash reserves, and the interest they pay on many of their loans is variable, not fixed, so higher rates are hurting them right now. Most dangerously, zombie debt was often not used to expand, hire or invest in technology, but to buy back their own stock.
These so-called repurchases allow companies to “retire” shares, or take them off the market, a way to make up for new shares often created to boost the pay and retention packages for CEOs and other top executives.
But too many stock buybacks can drain cash from a business, which is what happened at Bed Bath & Beyond. The retail chain that once operated 1,500 stores struggled for years with a troubled transition to digital sales and other problems, but its heavy borrowing and decision to spend $7 billion in a decade on buybacks played a key role in its downfall.
Those buybacks came amid big paydays for top management, which Bed Bath & Beyond said in regulatory filings were intended to align with financial performance. Pay for just three top executives topped $140 million, according to executive data firm Equilar, even as its stock sunk from $80 to zero. Tens of thousands of workers in all 50 states lost their jobs as the chain spiraled to its bankruptcy filing last year.
Companies had a chance to cut their debt after then-President Donald Trump’s 2017 tax overhaul slashed corporate rates and allowed repatriation of profits overseas. But most of the windfall was spent on buybacks instead. Over the next two years, U.S. companies spent a record $1.3 trillion repurchasing and retiring their own stock, a 50% jump from the prior two years.
SmileDirectClub went from spending a little over $1 million a year on buying its own stock before the tax cut to spending $780 million as it boosted pay packages of top executives. One former CEO got $20 million in just four years. Stock in the heavily indebted teeth-straightening company plunged before it went out of business last year and put 2,700 people out of work.
“I was like, ‘How did this ever happen?’” said George Pettigrew, who held a tech job at the company’s Nashville, Tennessee, headquarters. ”I was shocked at the amount of the debt.”
Another zombie, JetBlue, suffered problems felt by many airlines, including the lingering impact of lost business during the pandemic. But it also was hurt by the decision to double its debt in the past decade and purchase hundreds of millions of dollars of its own stock. As interest costs soared and profits evaporated, that stock has dropped by two-thirds, and JetBlue has not make enough in pre-tax earnings to pay $717 million in interest over four straight years.
JetBlue said the AP’s way of screening for zombies isn’t accurate for airlines because big purchases of aircraft “are an intrinsic part of the business model” and don’t reflect an airline’s true health. The company added that it’s been shoring up its finances recently by cutting costs and putting off purchases of new planes. JetBlue also hasn’t done a major stock buyback in four years.
In some cases, borrowed cash has gone straight into the pockets of controlling shareholders and wealthy family owners.
In Britain, the Glazer family owns much of the Premier League’s Manchester United soccer franchise loaded up the company with debt in 2005, then got the team to borrow hundreds of millions a few years later. At the same time, the family had the team pay dividends to shareholders, including $165 million to the Glazers themselves, while its stadium, Old Trafford, fell into disrepair.
“They’ve papered over the cracks but we’ve been in decline for more than a decade,” fan lobbying group head Chris Rumfitt said after a recent downpour sent water cascading from the upper stands in what spectators dubbed “Trafford Falls.” “There have been zero investments in infrastructure.”
The Glazers, who separately own the NFL’s Tampa Bay Buccaneers, recently brought in a new part owner at Manchester United who has promised to inject $300 million into the business. The stock is falling anyway, down 20% so far this year to $16.25, no higher than it was a decade ago.
Manchester United declined to comment.
Zombie collapses wouldn’t be so scary if robust spending by governments, consumers, and larger, more stable companies could act as a cushion. But they also piled up debt.
The U.S. government is expected to spend $870 billion this year on interest on its debt alone, up a third in a year and more than it spends on defense. In South Korea, consumers are tapped out as credit cards and other household debt hit fresh records. In the U.K., homeowners are missing payments on their mortgages at a rate not seen in years.
A real concern among investors is that too many zombies could collapse at the same time because central banks kept them on life support with low interest rates for years instead of allowing failures to sprinkle out over time, similar to the way allowing small forest fires to burn dry brush helps prevent an inferno.
“They’ve created a tinderbox,” said Spitznagel, founder of Universa Investments. “Any wildfire now threatens the entire ecosystem.”
TIME RUNNING OUT?
For the first few months of this year, hundreds of zombies refinanced their loans as lenders opened their wallets in anticipation that the Federal Reserve would start cutting in March. That new money helped stocks of more than 1,000 zombies in AP’s analysis rise 20% or more in the past six months across the dozen countries.
But many did not or could not refinance, and time is running out.
Through the summer and into September, when many investors now expect the first and only Fed cut this year, zombies will have to pay off $1.1 trillion of loans, according to AP’s analysis, two-thirds of the total due by the end of the year.
For its calculations, the AP used pre-tax, pre-interest earnings of publicly-traded companies from the database FactSet for both years it studied, 2023 and 2013. The countries selected were the biggest by gross domestic product: the U.S., China, Japan, India, Germany, the U.K., France, Canada, South Korea, Spain, Italy and Australia.
The study did not take into account cash in the bank that a company could use to pay its bills or assets it could sell to raise money. The results would also vary if other years were used due to economic conditions and interest rate policies. Still, studies by both the International Monetary Fund and the Bank for International Settlements, an organization for central banks in Switzerland, generally support AP’s findings that zombies have risen sharply.
Most of the publicly traded companies in the countries studied — 80% of 34,000 total — are not zombies. These healthier companies tend to be bigger with more cash, and many have reinvested it in higher-yielding bonds and other assets to make up for the higher interest payments now. Many also took advantage of pandemic-era low rates to refinance, pushing out repayment due dates into the future.
But the debt hasn’t gone away and could become a problem for these companies as well if rates don’t fall over the next few years. In 2026, $586 billion in debt is coming due for the companies in the S&P 1500.
“They aren’t on anyone’s radar yet, but they are a hurricane. They could be a Category 4 or Category 5 if interest rates don’t go down,” Valens Securities’ Spivey said. “They’re going to lay people off. They’re going to have to cut costs.”
Some zombies aren’t waiting.
Telecom Italia struck a deal last year to sell its landline network but debt fears continue to push down its stock, so it has moved to put its subsea telecom unit and cell tower business up for sale, too.
Radio giant iHeartMedia, after exiting bankruptcy five years ago with less debt, is still struggling to pay what it owes by unloading real estate and radio towers. Its stock has fallen from $16.50 to $1.10 in five years.
Exercise company Peloton Interactive has laid off hundreds of workers to help pay debt that has more than quadrupled to $2.3 billion in just five years even though its pretax earnings before the new borrowing weren’t enough to pay interest. Stock that had soared to more than $170 a share during the pandemic recently closed at $3.74.
“If rates stay at this level shortly, we’re going to see more bankruptcies,” said George Cipolloni, a fund manager at Penn Mutual Asset Management. “At some point, the money comes due and they’re not going to have it. It’s game over.”