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Annual Wage Growth Highest Since 2008: 5 Top Picks

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American workers saw their pay and benefits rising year over year in the second quarter at the fastest level since 2008. This undoubtedly is a sign of a strong labor market and low unemployment, which are compelling employers to raise wages to attract and retain workers. Clearly, the U.S. economy is on firm footing and poised to grow at a steady pace.

Also, the Commerce Department last week said that the U.S. economy grew 4.1% in the second quarter, marking the strongest performance in four years. Understandably, higher wages and benefits hint at greater purchasing power and increase in consumer spending. Against this backdrop, it makes good sense to invest in consumer discretionary stocks that are poised to gain from the solid annual growth in wages and benefits.

Higher Wages Point at Healthy Economy

U.S. workers saw the largest growth in wages and benefits since September 2008, according to a report released by the Labor Department on Jul 31. The Employment Cost Index (ECI), a measure of labor cost, jumped 0.6% in the second quarter. The cost of wages and benefits rose 2.8% on a year-over-year basis, the higher yearly growth rate in almost a decade. Wages alone gained 2.8%, which too hit a 10-year high.

Wages and salaries, which comprise 70% of employment cost, increased 0.5% in June. The biggest increase was in benefits, up 0.9%, the highest in four years. A strong labor market, with unemployment at an 18-year low of 4%, is forcing employers to raise wages to attract and retain workers.

Understandably, there are more open jobs than unemployed workers, according to government. Analysts believe that there will be significant acceleration in wage growth in the second half of 2018 as well, given that the labor market is expected to tighten further.

Favorable Economic Scenario

The U.S economy is stepping up and expected to grow significantly in the days to come. In a separate data released on Jul 31, the Commerce Department said that consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.4% in June, highlighting the strength in the country’s economy.

Moreover, U.S. GDP grew 4.1% in the second quarter, almost double the 2.2% pace witnessed in the first quarter, and the strongest performance in four years. Higher wage growth, a tightening labor market, a low unemployment rate and higher consumer confidence, all indicate a bullish economy. Higher wages mean more money in the hands of people, which definitely translates into higher spending.

Our Choices

The latest data from the Labor Department shows that the U.S. economy is on a steady growth track. The largest growth in wages in nearly a decade also proves that people have more spending power. A tightening labor market with employment at an 18-year low is a clear indication that employers will continue to raise wages to attract and retain employees. Moreover, a rise in consumer spending hints at greater spending power in the hands of Americans.

At the same time, with more open jobs than unemployed workers, the second half of the year too will see considerable acceleration in wage growth, which is likely to give more spending power to Americans. Given this scenario, investing in consumer discretionary stocks looks like a good option at this point. We have narrowed down our search to the following stocks based on a good Zacks Rank and other relevant metrics.

G-III Apparel Group, Ltd. (GIII - Free Report) is a leading manufacturer and distributor of apparel and accessories under licensed brands, owned brands and private label brands.

The company has an expected earnings growth of 46.9% for the current year. The Zacks Consensus Estimate for the current year has improved by 14.4% over the last 60 days. The stock carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Marine Products Corporation (MPX - Free Report)  is the third-largest distributor of sterndrive powerboats in the United States. 

Marine Products has a Zacks Rank #1. The company has an expected earnings growth of 36.7% for the current year. The Zacks Consensus Estimate for the current year has improved by 5.1% over the last 60 days.

Libbey Inc. (LBY - Free Report)  is the leading producer of glass tableware in the United States and Canada.

Libbey has a Zacks Rank #2 (Buy). The company has an expected earnings growth of more than 100% for the current year. The Zacks Consensus Estimate for the current year has improved by 2.8% over the last 60 days.

Columbia Sportswear Company (COLM - Free Report) is a global leader in design, sourcing, marketing and distribution of active outdoor apparel and footwear, with operations in North America, Europe and Asia.  

Columbia Sportswear Company has a Zacks Rank #2. The company has an expected earnings growth of 15.1% for the current year. The Zacks Consensus Estimate for the current year has improved by 2.4% over the last 60 days.

Deckers Outdoor Corporation (DECK - Free Report) is a global leader in designing, marketing and distributing innovative footwear, apparel and accessories developed for both everyday casual lifestyle use and high performance activities.   

Deckers Outdoor has a Zacks Rank #2. The company has an expected earnings growth of 11.5% for the current year. The Zacks Consensus Estimate for the current year has improved by 1.1% over the last 60 days.

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