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U.S. Jobs Growth Roars Back: Winners & Losers

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U.S. job growth has been healthy in the first half of 2019, with job additions rebounding in June from a weak May. The strength in the labor force implies that there is no pressing requirement for the Fed to trim interest rates in the near term to support economic expansion. Nevertheless, here’s a rundown on the strong job growth’s big winners and losers —

Hiring Rebounds in June

Despite worries about employment growth, the United States added a heartening 224,000 jobs last month, way higher than analysts’ expectations of 170,000 jobs, per the Labor Department. Such stellar job additions calmed nerves about the health of the economy, which has now entered its 11th year of expansion. It’s worth pointing out that May’s job additions of 72,000 raised doubts about the current state of the economy.

Nonetheless, hiring last month was widespread, defying disputes between the United States and its trading partners as well as slowdown in global economic growth that affected American exports and dented businesses and consumer confidence.

Professional and business services added 51,000 new jobs, while health care saw another 35,000 job addition. Transportation and warehousing added 24,000 jobs. Meanwhile, construction added 21,000 and manufacturing saw another 17,000 jobs added, way higher than its 2019 monthly average of 8,000.

Unemployment rate, by the way, edged up to 3.7% from 3.6% but is still near a 50-year low. The U-6 rate ticked up to 7.2%. However, the rate of underemployment rate is below where it was a few years back.

Staffing Stocks to Make the Most of a Strong Jobs Report

The latest job additions bode well for staffing companies. Additionally, the Conference Board’s Employment Trends Index rose to a reading of 111.63 in May from April’s 110.21 level. Gad Levanon, Chief Economist, North America, at the Conference Board added that “the Conference Board’s Employment Trends Index increased in May, more than reversing the declines in March and April.”

Given the buoyancy in the staffing space, investors can bet on Cross Country Healthcare, Inc. (CCRN - Free Report) and Kelly Services, Inc. (KELYA - Free Report) . Cross Country Healthcare, in particular, provides healthcare staffing, recruiting, and workforce solutions in the United States. The company currently has a Zacks Rank #1 (Strong Buy). The stock’s expected earnings growth rate for next year is a whopping 260%, way higher than the Staffing Firms industry’s projected rally of 15.4%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Likewise, Kelly Services, which provides workforce solutions to various industries, possesses a Zacks Rank #2 (Buy). The stock’s expected earnings growth rate for the current year is 7.9%, higher than the Staffing Firms industry’s estimated rise of 2.8%.

Chances of Multiple Rate Cuts Reduce, Financials Gain

Thanks to better-than-expected job additions, possibility of multiple rate cuts by the end of this year have reduced. Before the jobs release, market was expecting a 25% probability of a Fed rate cut by 50 basis points (bps), per CME Group data. But, chances of a 50-bp cut dropped to 5.9%. What’s more, the phenomenal jobs report shows that hourly pay has gone up by 6 cents to $27.90 an hour. In the last 12 months, wage gains held steady at 3.1%.

These developments stand in good stead for financials as well. After all, higher pay means that the cost of borrowing for both consumers and businesses is going to go up soon. Higher inflation, in turn, may force the Fed not to trim rates but instead it might even hike rates. A less dovish Fed will also help banks and insurance houses ramp up profits.  

With financials set to gain, investing in  Howard Bancorp, Inc. , Meridian Bancorp, Inc. and American International Group, Inc. (AIG - Free Report) seems prudent at the moment. Howard Bancorp currently has a Zacks Rank #2. The company’s expected earnings growth rate for the current quarter is 316.7%, way more than the Banks - Northeast industry’s projected growth of nearly 12%.

Meridian Bancorp, in the meanwhile, flaunts a Zacks Rank #1. The company’s expected earnings growth rate for the current year is 20.8%, higher than the Financial - Savings and Loan industry’s estimated rally of 3.5%.

And when it comes to American International Group, the insurance major has a Zacks Rank #2. The stock’s expected earnings growth rate for the current year is 322.2%, way higher than the Insurance - Multi line industry’s projected rally of 11.5%.

Gold Prices Under Pressure

Gold prices took a beating after the solid jobs report pushed the U.S. dollar index to its highest level in over two weeks. Needless to say, a rising dollar decreases the value of other countries’ currencies. This in turn hurts demand for commodities such as gold.

Mark O’Byrne, research director at GoldCore, added that “traders have used the better than expected jobs number to push gold prices lower…as expectations of a Federal Reserve interest rate cut in July have diminished somewhat.”

Per FactSet data, August gold gave up $20.80, or 1.5%, to settle at $1,400.10 an ounce following the jobs report. In fact, gold prices suffered a loss of 1% last week, which had followed two successive weeks of gains.

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