A strong economy propelled by broad-based hiring, a lower unemployment rate and tight labor market conditions among other factors induced a sense of assurance among consumers.
The optimism around the U.S. economy, thus, should have a positive impact on consumer spending, making it prudent to invest in some consumer discretionary stocks.
Tightest Labor Market in 20 Years
A new study by the Federal Reserve Bank of San Francisco earlier this month noted that the U.S. labor market has reached full employment. The labor market is at its tightest in nearly two decades as employers are having a hard time finding the right, skilled candidates.
“Our estimates indicate that the aggregate labor force participation rate is at its trend as of 2018. Combined with the low unemployment rate, this argues that the U.S. labor market is operating at or beyond its full potential,” the regional Federal bank concluded in an economic letter published on Nov 19.
The unemployment rate also reached a 48-year low of 3.7% in October, with U6, the real number of unemployed persons in the country, reaching 7.4% in October from the month before. The regional Fed bank noted that the labor force participation rate was at its trend of 62.8% in 2018, indicating the labor market was at full employment.
The overly tight labor market is the major reason behind the increase in wages. Wages in America grew at an annualized rate of 3.1% in October, climbing 2.8% from September. Wages grew the fastest in nine years, reaching an average hourly rate of $27.30 last month.
Employers Turn to Retirees to Meet Recruitment Demands
The tightening labor market has resulted in employers considering the older population for hire, as they are having a hard time retaining employees in an expanding job market where major industries are adding jobs and none are responsible for layoffs. In October alone, the economy added 250,000 jobs, outpacing analyst estimates of 190,000.
Ahu Yildirmaz, head of the ADP Research Institute, also noted that age will become less of a factor when tightening labor market is one of the biggest challenges employers will face over the next couple of years.
Companies like United Parcel Service, Inc. (UPS - Free Report) , Williams-Sonoma, Inc. (WSM - Free Report) and CVS Health Corporation (CVS - Free Report) etc., have been willing to hire older candidates to meet their hiring requirements.
Consumer Optimism of Economy Rises
Consumers are feeling increasingly assured about the economy, thanks to a strong economy and broad-based addition of new jobs in October.
Per the Conference Board data, consumer confidence index increased to 137.9 in October from 135.3 in September. The uptick in consumer confidence helped it surge to an 18-year high last month.
Consumers’ assessment of current conditions improved in October and they expect strong economic conditions to prevail through early next year. This sentiment was further boosted by a tightening labor market and increasing wages. The rise in household confidence is likely to propel consumer spending, which accounts for 70% of economic growth.
4 Consumer Discretionary Stocks to Buy
We have hand-picked a couple of stocks that carry a Zacks Rank #1 (Strong Buy). Each of these stocks has outperformed their respective industries this year.
Columbia Sportswear Company (COLM - Free Report) designs, markets and distributes active outdoor apparel and footwear. The company’s expected earnings growth rate for the current year is 21.1% compared with the Zacks Textile – Apparel industry’s projected rise of 19%. The Zacks Consensus Estimate for the company’s current-year earnings rose 4% in the last 60 days.
Rocky Brands, Inc. (RCKY - Free Report) is a leading designer, manufacturer and marketer of premium quality footwear and apparel. The company’s expected earnings growth rate for the current year is 57.8% compared with the Zacks Shoes and Retail Apparel industry’s projected rise of 13.7%. The Zacks Consensus Estimate for the company’s current-year earnings increased 7.6% in the last 60 days.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Hudson Ltd. (HUD - Free Report) is a travel retailer primarily in North America. The company’s expected earnings growth rate for the current year is more than 100% compared with the Zacks Leisure and Recreation Services industry’s estimated rise of 11.6%. The Zacks Consensus Estimate for the company’s current-year earnings advanced 13.9% in the last 60 days.
Belmond Ltd. (BEL - Free Report) is a global collection of exceptional hotel and luxury travel adventures in some of the world's most inspiring and enriching destinations. The company’s expected earnings growth rate for the current year is more than 100% compared with the Zacks Hotels and Motels industry’s projected rise of 22%. The Zacks Consensus Estimate for the company’s current-year earnings rose 57.8% in the last 60 days.
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