Recovering Into a Rate Hike: What the 2026 Staffing Forecast Means for Your Floor

Steve Farrell: All right. Welcome back to the Staffing Playbook Podcast. We've got a special episode here. Only going to spend about twenty minutes, but I want to talk about two numbers this week: twelve and four. Industrial staffing hours are up 12% year over year, and total staffing hours are sitting at their high for 2026. And as of two o'clock Eastern time on Wednesday, the Fed funds rate tops out at 4%, the first rate hike in more than three years. All in the same week. So here is the setup. The staffing industry just got told by the people who count it that it's growing for the first time in three years. And in the same breath, the Fed made the money more expensive. Growth on one hand and a hike on the other. And here's what I want to land today. A rate hike is not the end of the recovery. It's the next sorting event. The last three years sorted this industry once. The firms that leaned in while everyone pulled back are the ones taking share right now. Wednesday was the start of round two, and the sort is going to happen the exact same way.

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Steve Farrell: All right. Well, welcome back to the Staffing Playbook. I'm Steve Farrell. I'm the host of the Staffing Playbook and the COO at Your Employment Solutions. We are a light industrial staffing firm, and this is a solo episode. Just me, the freshest data that I could pull in this week, and what I think it means if you run a desk or a branch or just a book of business.

So four things on the docket. The turn — what growing again actually means once you index it honestly. Why it's happening, and why it's not what the headline says. What the Wednesday rate hike does to it. And the number that nobody's talking about while they celebrate revenue, and that's margin. So then the playbook.

So let's go ahead and get started with part one: the turn, and how it's been honestly indexed. Starting with the headline, because it's a real one. On September first, SIA put out their September forecast update. In March, they had the U.S. staffing industry growing less than 1% this year. Now, 2.4%. They tripled it. $183 billion in 2026, and another 2% on top of that next year. Nine of the eleven segments they track are growing. Their words: broad-based, although moderate, expansion. That's the first year of growth since 2022. Three straight down years — 2023, 2024, and 2025 — and the line finally turned.

And it's not just the forecast. Every gauge I trust is pointing the same way. The SIA Bullhorn Indicator, Tuesday's release, week ending September fifth: total U.S. staffing hours up 7% year over year once you adjust for Labor Day, and still sitting at the high for the year. The week before that was 10. The ASA index up four to five and a half percent. SIA's own confidence index near a post-pandemic high, and inside it, a net 62% of staffing firms reported more new orders over the past three months. That's the highest since late — and here's the one I'd put on a slide. BLS temp help employment has grown every single month from January through August this year. After three straight years where the pattern was month after month of decline, the line didn't just turn, it's held for eight months.

The public companies confirm it. TrueBlue's PeopleReady — that's the day labor, light industrial engine — up 23% in the second quarter. Manpower's U.S. Manpower brand up 16. Their CEO used the word recovery, not stabilization. Recovery.

Now, the part you have to say out loud. Up against what? Back in May, I stood here and told you SIA benchmarks staffing volume to January 2019 as 100. Total U.S. staffing was sitting at 97, still below 2019. Commercial — our world, industrial plus office and clerical — was at 78. Today, total U.S. is at 103. Commercial is at 85. Industrial is at 95. So yes, real progress in four months. And commercial staffing is still 15% below where it was seven years ago. Industrial is still five below. Up 12% is true, and it's a hole being filled.

But my second asterisk: the twelve is measured against 2025, a year the industry shrank in the middle of a tariff shock. We're lapping a weak base. Same caveat as May, and it still applies. And here's the new wrinkle. Bullhorn is already warning that the last fall was strong, so the year-over-year numbers are going to look smaller from here, even if the volume holds. When you see up four in November instead of up twelve, that's the base moving, not the floor falling. So don't panic when it happens.

Third, SIA puts the industry peak at $243 billion. That was back in 2022. We're at $183 billion. Roughly a quarter of the industry's peak revenue is still gone.

So here's the honest version. The thaw I told you about in May turned into a recovery. And that's real, and I'll take it. But we are climbing out. We are not breaking out. If you're presenting to your leadership this month, that's the sentence. Not, "we're back." It's, "we're climbing."

That moves us into part two. It's not a rising tide. It's penetration. Now, the part that changes how you should think about the growth, because why it's happening matters much more than that it's happening. SIA economist Michael Schultz put out an industrial staffing assessment at the end of July, and there's one finding in it I haven't been able to put down. All year, total employment in industrial occupations — the actual number of people working production, warehouse, and material moving jobs in this country — has been falling year over year. Falling, while industrial staffing hours are up. So let's read that again. Fewer industrial jobs, more industrial staffing.

That is not a rising tide. That is penetration. Clients are choosing to run a bigger share of their workforce through us. SIA's phrase was clients re-embracing workforce flexibility. And that cuts both ways. You can share in the earn, and you can also share in the lose. When a client feels confident enough to hire direct, it comes back. When a client gets nervous — say, because money just got more expensive — it comes back faster. Penetration is a gift with a return policy. So the question for every branch isn't, is the market growing? It's, why did this client choose us this quarter, and what would make them unchoose us?

Now, where is the penetration coming from? Well, I see three places, and they're all in our lane.

Number one, manufacturing is running on overtime. ISM's manufacturing index has been in expansion for eight straight months. Employment in the sector is up 58,000 since the December low. Manufacturing job openings jumped by roughly 75,000 to 80,000 in July, the biggest gain of any sector, and SIA's data says the plants are covering it with overtime. Even Schultz described the mechanism almost exactly. Clients are hesitant to add direct headcount, so they stretch the work week first, and when stretching the work week isn't enough, they call their staffing partner. If you've ever sold a manufacturing account, you know that's the leading indicator. Overtime is the phone call before the order.

So where's the overtime the heaviest? Primary metals. Nonmetallic minerals — that's glass, concrete, stone — and transportation equipment, especially motor vehicle parts. Let's hold on to that list. I'm going to come back to it in part three, because there's something about it that you should worry about.

Number two, data centers. SIA counts thirty to forty hyperscale projects, a hundred megawatts and up, either under construction or in planning in the U.S. right now. Each one needs a thousand or two thousand workers in the construction phase, and they're paying 30 to 40% above standard wages to get them. Think about what that does to a town. A project that size doesn't just hire two thousand people. It pulls two thousand people out of every plant, every warehouse, every job site within driving distance. And every one of those employers now has a hole. The data center is the headline. The backfill is the business.

It's in the numbers. Construction added 22,000 jobs in August — that was the sixth straight month, fastest pace since early 2025 — and the Contractors Association credits data center work directly. And on Monday, a 60-office staffing firm bought a skilled trades platform for one stated reason: to get into data center construction staffing. So when the acquisitions start pointing at a vertical, the vertical is real.

Number three, geography. SIA calls Texas the hotbed. Manufacturing, warehouse, construction, solar, oil, gas. Over the past twelve months, Texas accounted for 80% of all the employment services jobs added in the entire country. One state. Which is why SIA flagged that in July, employment services jobs fell in California, Florida, and Texas, all three of the biggest staffing states, the same month. Preliminary, could be noise, but their words were, stalling or declining activity in Texas would be a concerning development.

So the honest read on part two: the growth is real, it's concentrated in manufacturing, data centers, and a handful of states, and it's coming from clients choosing flexibility, not from more jobs existing. That's a strong position, and it's not a safe one.

So that moves us into part three, the hike. Which brings us to the Wednesday meeting. At twelve o'clock Eastern, the Federal Reserve raised rates a quarter point, 3.75 to 4%, the first hike since July of 2023. And it was unanimous. Twelve to nothing. In July, it was nine to three. On Wednesday, the other nine came over. Nobody on that committee thinks inflation is fixing itself.

And here's why, because the why is the part that lands on your desk, on my desk. Inflation came in at 3.4% for August. Core — strip out food and energy — was 2.4. So it's not broad, it's energy. The energy index is up 16% over the last year. Gasoline is up 27. Diesel just hit an all-time high, $6.31 a gallon. That's the Iran conflict and the Strait of Hormuz working its way into every fuel pump and every freight invoice in America. ISM's manufacturing prices index has now risen for twenty-three straight months.

And the Fed's new chair, Kevin Warsh, didn't soften it. He said the plain fact is that inflation is too high and has been for too long. So the whole decision is in one sentence. "We must be confident that the underlying inflation is moving to our objective clearly and at sufficient speed. Today, the FOMC decided that this standard has not been satisfied." That was the chairman. The statement itself said the hike will support a timely return to 2%.

Well, they're not done. Their own projections say one more hike this year. Twelve of eighteen members. Inflation forecast for the year raised to 3.7, unemployment finishing at 4.1. So read that carefully. The Fed is not forecasting a recession. It's forecasting expensive money and a flat labor market. And there's a line in that statement for us. Productivity growth is strong and capital investment is robust. The CapEx is still coming. It just costs more now.

So what does a hike do to a staffing recovery? Well, I think there's three things, and I'll bet on all three.

The first one: remember the overtime list from part two? Primary metals, concrete and glass, motor vehicle parts. Here's my read on the list. Those are the two most interest-rate-sensitive corners of manufacturing in this country. Concrete and glass go into houses. Auto parts go into cars. Both get bought on credit. The exact sectors carrying the heaviest overtime right now are the ones a hike touches first. That's not SIA's conclusion. That's mine, looking at their list. But I want to know how much of my book is sitting in it. Compare that to data centers. Those aren't financed at your local bank. That's the robust capital investment the Fed just named. A quarter point doesn't slow a hundred-megawatt build. So inside the same industrial number, you've got clients who feel a hike immediately and clients who barely notice. Your job this quarter is knowing which is which.

Second, your associates just took a pay cut and nobody told them. Wages are up 3.1% over the year. Prices are up 3.4. Gas is up 27. That commute to the plant got more expensive faster than the paycheck grew. When attendance slips this fall, when the second shift no-show ticks up, that's what you're looking at. It's not attitude. It's arithmetic.

And this is the one I'd actually build around. A hike freezes the market further. And a frozen market is a temp market. Just look at the July numbers. The hire rate is 3.2%. Quits, 1.9. Layoffs, 1%. Challenger's announced cuts — announced, not actual — the lowest August since 2022. So nobody's firing, nobody's quitting, and nobody's committing to a perm hire either. Andy Challenger's line: companies are announcing hiring plans up 700% from last August, and it doesn't appear those positions are being filled quickly. That's us. The gap between "we need people" and "we're not ready to put them on payroll." That's the entire staffing business model. A hike widens the gap. The ASA chief economist said it straight. This is what he said: temp employment continues to benefit from a cautious hiring environment. So caution is our tailwind. Wednesday made every employer in America a little more cautious and told them another one is coming.

So no, I'm not calling the top. I'm saying the recovery just got harder to hold on to, and the operators who understand which clients feel it and why their associates are getting squeezed are the ones who keep the share they have earned.

Now we're going to move into part four, growth without margin. Last big thread, and it's the one I'd put on the wall of every branch. Every public staffing company that reported this summer told the same story. Revenue up, margin down. TrueBlue: revenue up almost 12%, gross margin 20.7, down from 23.6 a year ago. So three full points. Manpower Group: revenue up eight, margin down eighty basis points. Robert Half, different world, professional, but same shape. Revenue down a little, margin down more. SIA said it flat out in their industrial report: pay rate growth continues to outpace bill rate growth. Workers' comp is biting. The mix is shifting towards lower margin work. And that's two of the biggest names in light industrial staffing saying it out loud on the earnings calls. If it's happening to them, it's happening to you. You just might not have closed the books on this yet.

So here's the trap. In a downturn, everybody watches margin because there's no revenue to hide behind. In a recovery, the top line starts moving. The branch feels busy, the orders are up, and the pay rate creep just quietly eats at the spread. You feel great for two quarters. Then you look up and you're doing more volume for less money than you made through it.

And SIA handed us the fix almost by accident. In the forecast, they said their 2027 number has an upside scenario, and it comes from one of two things: volume accelerating or bill rates accelerating. You don't control volume. You do control pricing. The industry's own forecasters are saying the difference between a 2% year and a better one is whether staffing firms hold the line on rate. That conversation is easier right now than it will be in January. Orders are up. The client's plant is on overtime. The data center down the road just poached their maintenance tech at a 40% premium. So you have leverage this quarter that you will not have once Wednesday's hike works through the economy. And the Fed just told you another one is coming. So use it.

One more thing SIA said that I think every light industrial operator needs to hear. Long-run growth in this segment is going to require either penetrating verticals we've historically ignored or moving upmarket into more specialized skills that command higher bill rates. And in their words, forklift drivers could face headwinds over the next decade from automation. Hard jobs, like my episode a while back, are still the safe jobs, but the easy hard jobs are getting less safe. The mix has to move.

All right, so the playbook. What to do on Monday. What I'd be doing Monday morning if I ran your branch.

Number one, reprice before Q4. Pay is outrunning bill at TrueBlue and Manpower, which means it's outrunning bill at your desk. Bill rate growth is half of the upside scenario in SIA's own forecast, and it's the half you can control. Have the rate conversation now, while orders are up and the client is running overtime. Not in January, when Wednesday's hike has landed and the next one's on the calendar.

Two, sort your book by rate sensitivity. Go client by client. Autos, concrete, glass, anything housing adjacent — rate exposed. Data centers, energy, food, aerospace — much less so. You need to know where a hike lands before it lands. Don't let the industrial average hide it from you.

All right, number three, sell overtime relief. Manufacturing is covering demand with overtime. Overtime is the phone call before the order. Walk into every plant running six-day weeks with the math on what a bench of associates costs versus the time and a half plus burnout plus the safety incidents that are coming.

Number four, chase the backfill, not the site. Map every data center project within an hour of each of your branches. The site's hiring at a 40% premium. You're probably not winning that. But every plant around it just lost people. That's your order. That's the business.

Number five, build the fuel plan. Gas is up 27%. Diesel just set a record. Your associates' commute just got more expensive than their raise. Carpools, shift consolidation, ride programs, and a gas card for perfect attendance. Whatever fits. Retention is cheaper than recruiting. Remember that. And this fall, retention is really going to be about the drive. It's going to be about gas.

Number six, paper your job orders. Massachusetts just fined a franchisee and two staffing firms a million and a half for misclassification, and the staffing firms couldn't produce the job order state law requires. I said it in May and I'll say it again: compliance is a sales asset. Be the partner who has the paperwork before the client asks.

And the one that ties them together — doubled down when others pulled back. A rate hike is a freeze. Every operator who reads it as "pull in, wait it out" is handing share to the one who doesn't. The last three years proved it. The firms that built into the freeze are the ones the forecast is describing right now. Wednesday started the next sort. Be on the right side of it.

All right, so I'm going to wrap this up. The industry is growing for the first time in three years. It's growing because clients are choosing flexibility, not because there are more jobs. And the Fed just made the money more expensive at the exact moment we got it back. Growth on one hand, a hike on the other. The operators who understand both are the ones who keep what they earn.

One more thing. This is National Staffing Employee Week. If you run a branch, go stand on a floor this week and thank an associate. They're the product. Everything I just said is downstream of them showing up.

That's the episode. I'm Steve Farrell. This has been the Staffing Playbook. If it was useful, send it to one person who runs a branch and needs to hear it. And I will see you guys next time. We have a special episode talking about sales a week from now. So talk to you soon. Thanks, everybody, for tuning in.