By Nick Zieminski

NEW YORK (Reuters) - Temporary employment, aleading indicator of future U.S. jobs growth, is suggestingstronger hiring ahead and staffing industry executives say theyare seeing stronger demand for staff than is reflected inofficial figures.

A number of data points support the contention that amodest labor recovery is taking root, industry executives say.These include rising conversion rates of temporary intopermanent staff, and more so-called light industrial jobs inlogistics and manufacturing operations, which typically precedewider turns in the economic cycle.

Strength in those areas appears partly at odds with thelatest payroll numbers from the government, which showed adecline in manufacturing jobs, staffing industry insiders say.

Although U.S. payrolls fell for the third straight month,August's decline of 54,000 jobs outside the farm sector wasmuch smaller than expected, and declines in the prior twomonths were smaller than initial numbers showed. Theunemployment rate edged up to 9.6 percent, the Bureau of LaborStatistics said Friday.

Adecco SA has seen 50 percent year-over-yeargrowth in demand for light industrial workers, a category thatincludes jobs like drivers, distribution workers and assemblyline jobs. Such numbers accelerated from July to August, saidTig Gilliam, who heads North American operations forSwiss-based Adecco.

"The temp business is still growing and continues to be aleading indicator," Gilliam said. "I wouldn't call it on fire,but the temp market is good."

He added he was surprised by the weakness in manufacturingshown in the U.S. government figures, which was at odds withAdecco's internal data.

"We're on an even keel, which is a slower rate of recoverythan we saw earlier in the year, but we're still movingforward," Gilliam said.

GROWTH IN TEMP JOBS

Temporary help services added 17,000 jobs last month, andthe sector's year-over-year increase of 22 percent was thebiggest gain since 1991, said BMO Capital Markets. Thepercentage of temporary workers in the labor force, a crucialmetric, was at 1.62 percent, well above the nadir of 1.33percent in September 2009.

"Staffing stocks should react favorably to this news," BMOanalyst Jeff Silber said in a note to clients.

Adecco shares jumped 3.2 percent in Zurich trading.

Manpower Inc shares were up 3.2 percent to $48.31.Robert Half International Inc rose 4.2 percent to$23.95. Spherion parent SFN Group added 8.3 percent to$6.52, all on the New York Stock Exchange. Monster WorldwideInc jumped 7.8 percent to $12.42.

In afternoon trade on the Nasdaq, Hudson Highland Group Inc. rallied 6.2 percent to $3.25, and Kelly Services Inc added 4 percent to $11.89.

Next week, Manpower will publish its quarterly hiringoutlook for the United States and 35 other countries.

Growth in temporary payrolls is encouraging news for globalstaffing companies like Adecco and Manpower, which generatelarge portions of their sales and profits from placing contractworkers. Temp jobs are considered a leading indicator becausecautious employers often have a try-before-you-buy attitudetoward ramping up staff.

Many uncertainties remain, including the result of U.S.November congressional elections, the impact of Europe'ssovereign debt crisis and the health of U.S. consumers amidrenewed weakness in housing. An apparent recovery could yetpeter out.

But recent signs, including strong manufacturing andsame-store sales, have eased concerns about a double-diprecession and allowed stock prices to rebound..

TURNING TEMPS INTO HIRES

Randstad, another huge global staffing company thatgenerates more than $1 billion a year in revenue from U.S.general staffing, has seen a rise in conversion rates, the rateat which a temporary worker turns into a permanent employee.

That is especially visible among white-collar jobs, saidLinda Galipeau, president of Randstad's U.S. general staffing.She added that employees who now have jobs are starting to lookaround for alternatives, suggesting either confidence in theirprospects or frustration with their current employers.

Recent conversations with clients have shown a positive, ifcautious, attitude toward hiring, with only housing industryclients showing a negative outlook, Galipeau said.

"They are still feeling the crunch, but apart from that,people feel good about the business trends," she said. "Clientsare talking about revisiting the level of contingent labor thatthey've been comfortable with in the past and just inching thatup a little bit."

As a result, the temp penetration rate is likely to risemore rapidly in coming months, possibly to a record high,unless employers suddenly face an exodus of workers and becomenervous about excessive turnover.

Randstad shares rose 2.4 percent in Amsterdam. (Reporting by Nick Zieminski; Editing by Tim Dobbyn)