In April, the unemployment rate declined to the lowest level witnessed since December 2000. Further, economists indicated that the rate of hiring would likely decline further in the months ahead. Job additions also increased compared to March, though it remained clear that the pace of hiring was undergoing a decline.
Such a phenomenon is in keeping with a labor market near full employment. Professional and business services led job gains, followed by healthcare and manufacturing. With jobs gains likely to continue in the months ahead, picking stocks from these sectors looks like a prudent option at this point.
Unemployment Falls to Near 18-Year Low
The unemployment rate declined from 4.1% in March to 3.9% in April, the lowest level in nearly 18 years. This pace is also marginally higher than the Federal Reserve’s targeted rate of 3.8%. This is the first time in six months that the unemployment rate has undergone a decline.
Incidentally, joblessness has fallen below 4% on very few occasions in the last 70 years. This occurred during the Korean War, the Vietnam War and the dotcom boom in the late sixties, early seventies and in 2000, respectively. In contrast, unemployment had hit 10% in October 2009 when the U.S. economy was still recovering from the Great Recession.
A section of economists feels that the decline in the unemployment rate was partially attributable to a marginal fall in the labor participation rate, which declined from 62.9% to 62.8%. However, most economists expect that the unemployment rate will undergo further declines. Currently, the labor market is increasingly tightening and the Fed has projected a jobless rate of 3.6% for 2019.
Professional and Business Services Lead Gains
The economy added 164,000 jobs in April, lower than the consensus estimate of 194,000. However, job additions for March were revised upward from 103,000 to 135,000. During 2018, job additions have registered an average pace of 200,000 jobs per month, higher than last year’s average pace of 182,000.
At the forefront of job gains were healthcare and manufacturing. Each of these sectors added 24,000 jobs. In the last 12 months, these sectors have added 305,000 and 245,000 jobs, respectively. However, leading the pack was the professional and business services sector which added 54,000 jobs. The sector has added 518,000 jobs in the last 12 months.
The decline in the unemployment rate indicates the extent to which the labor market has tightened. This is also probably why job additions have declined to a pace lower than those witnessed early this year. However, most economists think job additions will continue and the unemployment rate will decline further.
Professional and business services, healthcare and manufacturing have been the biggest gainers according to the April jobs report. Adding stocks from these sectors looks like a smart choice at this point. However, picking winning stocks may be difficult.
This is where our VGM Score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.
CRA International Inc. (CRAI - Free Report) provides legal, regulatory, business consulting and other expert services through its specialized consultants across the globe.
CRA International has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. The company has expected earnings growth of 22.5% for the current year. The Zacks Consensus Estimate for the current year has improved by 8.8% over the last 30 days.
AMN Healthcare Services, Inc. (AMN - Free Report) is a travel healthcare staffing company. It recruits and places nurses, physicians, and other healthcare professionals in travel or permanent assignments in acute-care facilities, physician practice groups, and other healthcare facilities.
AMN Healthcare Services has a Zacks Rank #1 and a VGM Score of A. The company has expected earnings growth of 31.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 4% over the last 30 days.
Caterpillar Inc. (CAT - Free Report) is the world’s leading manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines.
Caterpillar has a VGM Score of B. The company has expected earnings growth of 55.6% for the current year. The Zacks Consensus Estimate for the current year has improved by 17.2% over the last 30 days. The stock has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Avis Budget Group, Inc. (CAR - Free Report) provides vehicle rental services through a network of approximately 10,000 car and truck rental locations in the United States, Canada, Australia, New Zealand, Latin America, the Caribbean, and parts of Asia.
Avis Budget Group has a Zacks Rank #2 (Buy) and a VGM Score of A. The company has expected earnings growth of 16.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 1.7% over the last 30 days.
Tenet Healthcare Corp. (THC - Free Report) is an investor-owned health care services company, which owns and operates general hospitals and related healthcare facilities for urban and rural communities in numerous states.
Tenet Healthcare has a Zacks Rank #2 and a VGM Score of A. The company has expected earnings growth of 80.1% for the current year. The Zacks Consensus Estimate for the current year has improved by 58.7% over the last 30 days.
Kennametal Inc. (KMT - Free Report) is a manufacturer, marketer and distributor of high-speed metal cutting tools, tooling systems as well as wear-resistant parts.
Kennametal has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of 71.2% for the current year. The Zacks Consensus Estimate for the current year has improved by 1.4% over the last 30 days.
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