Businesses are turning to temp workers — and that could be a good sign for the economy

A new Beige Book was released Wednesday — that’s the Federal Reserve’s periodic report on how economic conditions feel on the ground — and a lot of business owners expressed uncertainty, with the war in the Middle East weighing on long-term decisions.

Several areas also saw an uptick in demand for temporary and contract workers. Are the two related?

A lot of companies had just been finding their footing after the last shock of tariffs, said Holly Wade, executive director of the National Federation of Independent Business research center.

“That initial panic and stress last year was more moderated as time went on and they were able to figure out how this was all impacting them,” she said.

Then came the war with Iran, which ushered in rising energy costs and questions about how consumers would respond.

“So [business owners] are holding on to their dollars, not investing as much in their business,” Wade said.

NFIB’s most recent survey of small business owners found they’re pulling back on capital spending plans at rates not seen since the Great Recession.

“They're not necessarily willing to make a full time commitment to hire an employee, but they sense that their customers want something from them,” said Aaron Terrazas, an economist with HR platform Gusto.

That’s often when employers look for temporary help, said Noah Yosif, chief economist at the American Staffing Association.

“What we're seeing is that staffing services is being looked to as a way not only to test the labor market, but also to backfill open roles that require a person at that moment,” he said.

Federal data show temp staffing jobs have been inching up over the last six months, after falling dramatically over the previous four years.

Yosif said historically these jobs have been a leading indicator for the broader labor market, falling at the beginning of downturns and rising as hiring conditions begin to improve.

“Staffing employment offers that sweet spot … before employers start to feel confident again about making those large scale investments in headcount,” he said.

But whether companies will follow the usual pattern this time is especially unclear, said David Weil, a professor of labor studies at Brandeis University.

“There is also an aspect with AI becoming so much more of a factor in how businesses are deciding how to allocate work,” he said.

The Beige Book report found artificial intelligence had not yet significantly affected staffing levels, though some businesses reported productivity gains had enabled them to delay or reduce staffing.