Job additions topped forecasts in October, with unemployment rate at a 48-year low. American workers enjoyed the biggest rise in pay since 2009.
Robust jobs data, thus, painted a pretty picture of the U.S. economy. Let us, thus, look at stocks that can make the most of the blockbuster jobs report and scale north.
Here’s Proof the Labor Market is on Fire
The U.S. economy continues to be one of the world’s most powerful employment generating machines. According to the Bureau of Labor Statistics, the economy added 250,000 new jobs in October, exceeding analysts’ estimates of around 188,000. Nonfarm payrolls, in fact, rose average 213,000 through the first 10 months of this year, way higher than 182,000 in the same period last year.
Such a feat was achieved despite questions about employers’ ability to find skilled labor, headwinds associated with slowdown in cyclical part of the economy, including housing, and distortions from hurricanes.
By the way, the jobless rate ticked down to 3.7%, the lowest since 1969. The real unemployment rate, including those who are underemployed and discouraged, also known as the U6 rate, contracted to 7.4%, which is slightly less than last’s month’s estimate of 7.5%. The U6 now stands at a level lower than it was during the 2007-2009 recession.
(Source: Bureau of Labor Statistics)
More Jobs Lure People In to Labor Force: Staffing to Shine
Such a strong month of hiring has led to the labor force participation rate increasing to 62.9% from 62.7% the prior month. This surely bodes well for staffing companies. Additionally, the Conference Board’s Employment Trends Index was 110.77 in September. Compared to the year-ago level, the index shows a jump of 6.7%.
Gad Levanon, chief economist, North America, at the Conference Board had said that “the index remains on a solid upward trend and demand for workers is likely to continue growing rapidly in the coming quarters.”
The buoyancy in the staffing space is further confirmed by its solid Zacks Industry Rank in the top 23%, indicating continued hiring and more job opportunities. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1.
Leisure and Hospitality Lead the Way in Hiring
By and large, the jobs report showed that most of the industries added jobs and workers’ pay have risen at a better-than-expected pace. Construction firms boosted payrolls by 30,000 and manufacturers took on 32,000 workers. Healthcare and education taken together, in fact, witnessed the highest job growth in October.
However, it was the leisure and hospitality sector that singlehandedly led the way in hiring by increasing employment by 42,000. Such a hiring spree indicated that those who are into the arts and entertainment, hotels and food businesses are in an expansion mode and their businesses are churning out huge profits.
Record Wage Growth to Boost Consumer Discretionary Spending
The phenomenal jobs report also shows that hourly pay went up 0.2% to $27.30 last month. In the last 12 months, wages rose to 3.1% from 2.8%, touching 3% for the first time since the end of the Great Recession.
(Source: Bureau of Labor Statistics)
Courtesy of record wage growth, the consumer discretionary sector is, thus, poised to benefit significantly. After all, higher wage growth plays a significant role in driving consumer discretionary spending. Needless to say, among the economic factors that mostly affect demand for consumer discretionary goods is wage growth. If wages keep rising, consumers generally have more discretionary income to spend. In contrast, if wages fall or remain stagnant, demand for such goods decline.
Jobs Report Points to Higher Interest Rates, Banks Gain
Higher pay means that the cost of borrowing for both consumers and businesses is going to go up soon. Higher inflation, in turn, may lead to increased interest rates.
Minutes from the U.S. Federal Reserve’s September meeting had already confirmed that the central bank is most likely to continue hiking benchmark lending rates at a gradual pace this year and beyond. Majority of the Fed policymakers said that rate hikes “would most likely be consistent” with economic expansion, strength in labor market and the current period of firming inflation.
As the stage for gradual rate hikes is set, institutions such as banks will see a ramp up in profits. Higher interest rates can boost bank profits as they increase the spread between what banks earn by funding longer-term assets, such as loans, with shorter-term liabilities.
Top 5 Winners
From recruiters and leisure and hospitality to consumer discretionary players and banks, all stand to gain from a strong jobs report. Thus, investing in such stocks seems the right thing to do now. We have picked five such stocks that should make meaningful additions to your portfolio. These stocks flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).
BG Staffing, Inc. (BGSF - Free Report) provides temporary staffing services in the United States. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for the company’s earnings rose 1.2% in the last 60 days. The company’s expected earnings growth rate for the current year is 63.4% compared with the Staffing Firms industry’s projected rise of 22.3%.
Heidrick & Struggles International, Inc. (HSII - Free Report) enables its clients to build leadership teams by facilitating the recruitment, management, and deployment of senior executives. The company currently has a Zacks Rank #1. The Zacks Consensus Estimate for the company’s earnings rose 11.4% in the last 60 days. The company’s expected earnings growth rate for the current year is 105.5% compared with the Staffing Firms industry’s estimated rise of 22.3%.
The Marcus Corporation (MCS - Free Report) owns and operates movie theatres, and hotels and resorts. The company currently has a Zacks Rank #1. The Zacks Consensus Estimate for the company’s earnings rose 6.8% in the last 60 days. The company’s expected earnings growth rate for the current year is 22.1% compared with the Leisure and Recreation Services industry’s projected rise of 5.3%. You can see the complete list of today’s Zacks #1 Rank stocks here.
BJ's Restaurants, Inc. (BJRI - Free Report) owns and operates casual dining restaurants in the United States. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for the company’s earnings rose 9.4% in the last 60 days. The company’s expected earnings growth rate for the current year is 64.5% compared with the Retail - Restaurants industry’s estimated rise of 10.5%.
Reliant Bancorp, Inc. (RBNC - Free Report) operates as the holding company for Reliant Bank that provides a range of commercial banking services for businesses and individuals. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for the company’s earnings rose 2.1% in the last 60 days. The company’s expected earnings growth rate for the current year is 36.2% compared with the Banks - Southeast industry’s projected rise of 32.2%.
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