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The much awaited August non-farm payroll report is due to be released this morning. I say “much awaited” because the market seems to be placing a huge emphasis on this number, although we know that this is a lagging indicator. [For example, see Joseph Ellis’s Ahead of the Curve]

Both the Challenger survey and the ADP private sector numbers are pointing to a weak headline this morning. However, one never knows what the birth/death adjustments will do to the actually number. There may be another way of looking that the health of the job market that by-passes the statisticians.

Larry Kudlow and company will have you believe that the economy is strong and jobs are plentiful. If that were the case, the job placement firms should be doing a brisk business. Instead, we have a sector-wide warning on staffing companies from UBS AG (NYSE:UBS).

UBS analyst Andrew Fones downgraded shares of Robert Half International Inc. and Monster Worldwide Inc. to "Neutral" from "Buy." He also lowered his stock ratings on Heidrick & Struggles International Inc. and Korn/Ferry International Inc. to "Sell" from "Neutral."

Fones said he expects U.S. hiring growth to deteriorate in coming months, especially because of turmoil in the credit market.

"We are concerned that a continuation of credit market difficulties could further weigh on recent weak hiring growth," Fones wrote in a client note.

Also, Fones said growth in temporary staffing has fallen steadily since December 2005. Temporary staffing is a leading indicator of overall employment trends because companies are quick to fire temporary employees when demand falls.

If you look at the group of charts below, you’ll see that the weakness is indeed a sector-wide phenomenon. 4 out of 9 stocks peaked well before July. Several of the charts feature 20 DMA below the 50 DMA (blue and red lines respectively), with the 20 DMA acting as upside resistance.

click to enlarge

This doesn’t bode well for the employment picture, unless you believe that there is full employment and everyone is happy such that nobody is looking for a job. Of course if you do believe that, Larry Kudlow may be interested to have you on his show.

Source: UBS Issues Sector-Wide Warning on Staffing Companies