The labor market rebounded strongly in October on the back of nonfarm payroll numbers and crushing estimates and a seven-and-a-half-year low unemployment rate. Meanwhile, wage growth - a catalyst to the Fed's to inflation rate target - also showed significant improvement last month. These factors indicate that the labor market is back on track to boost the economy after witnessing sluggish growth in previous few months.
On Friday, the U.S. Department of Labor reported that the economy generated 271,000 nonfarm payroll jobs in October, witnessing its biggest monthly gain since Dec 2014. It also surpassed the consensus estimate of 182,000. It was also reported that the unemployment rate declined to 5% last month from 5.1% in September.
Moreover, the report showed that average hourly earnings increased 9 cents in October to $25.20 after rising only 1 cent a month before. It also registered a 2.5% year-on-year gain, recording its biggest gain since the great recession.
Jobs additions in sectors including professional and business services, health care, retail trade, food services and drinking places, and construction played the lead role in boosting the jobs data in October. Strong job generation in these sectors indicated that they hold promise for impressive growth in the near future. In this scenario, we have highlighted five stocks from these sectors that may benefit from this improving environment.
Job Data in Detail
The professional and business services sector was the biggest recruiter in October. The sector generated 78,000 new jobs, significantly higher than monthly average of 52,000 over the past year. The health care, retail trade, and food services and drinking places also played an important role in creating jobs last month. These three sectors added 45,000, 44,000 and 42,000 jobs, respectively, in October. Another major contributor, the construction sector, generated 31,000 jobs last month.
However, the mining sector, which also includes oil and gas extraction, remained on weaker side. Employment in the sector declined 5,000 in October and total volume of jobs reduction in the sector since Dec 2014 came in at 109,000. The ongoing slump in oil prices and weak global demand continued to have a negative impact on this sector.
Meanwhile, the civilian labor force participation rate remained unchanged at 62.4% in October after declining 0.2% in September. The employment-population ratio improved slightly in October to 59.3% from September's 59.2. Separately, average workweek remained flat with September at 34.5 hours.
Lingering Concerns
Though the labor market indicated a strong recovery last month, several data showed that the economic environment is still remained weak overall. The "advance" estimate by the Bureau of Economic Analysis showed that growth in GDP slowed to an annual rate of 1.5% in the third quarter, down from 3.9% growth recorded in the second quarter. Meanwhile, other concerns including an oil price plunge, a stronger dollar and China-led global growth worries continued to affect the U.S. economy.
Disappointing economic data continue to weigh on the broader markets. Economic data from retail sales to core durable goods all suggest that the U.S. economy is hitting a soft patch. Also, consumer spending recorded its smallest increase in September since January. Meanwhile, the third-quarter earnings performance also remained disappointing. As of Nov 6 (before the opening bell), 444 S&P 500 members reported third-quarter earnings results. Total earnings of these companies are down 2.5% on 4.6% lower revenues year on year.
5 Prominent Picks
Despite several concerns, October's strong jobs report showed a ray of hope that the economy will rebound in the final quarter of the year. Though the pace of economic growth decelerated from the second quarter, analysts remained optimistic about a pickup in the final quarter, which primarily constitutes the holiday season. Thus October's positivity in the labor market is anticipated to continue in near future.
In this environment, we have selected five stocks with strong fundamentals from the sectors (professional and business services, health care, retail trade, food services and drinking places, and construction) that played major roles in boosting jobs last month. Strong jobs additions, in turn, indicated favorable conditions prevailing in these sectors.
We primarily screened stocks that carry a Zacks Rank #1 (Strong Buy) or #2 (Buy). Then we narrowed down our choices with the help of our new style score system . Essentially, we searched for stocks with Growth Style Scores of 'A' or 'B'. Our research shows that stocks with Growth Style Scores of 'A' or 'B' when combined with Zacks Rank #1 or #2 offer the best investment opportunities in the growth investing space.
Business Services
Fiserv, Inc.FISV provides information management systems and services to the financial and insurance industries.
This Zacks Rank #2 company has a Growth Style Score of 'B.' FISV has a current year growth estimate of 14.5%, higher than the industry growth rate of 11.7%.
Health Care
Gilead Sciences Inc.GILD , a biopharmaceutical company, focuses on the discovery, development and commercialization of drugs for several indications including human immunodeficiency virus (HIV).
This Zacks Rank #2 company has a Growth Style Score of 'B.' GILD has a current year growth estimate of 51.3%, higher than the industry growth rate of 8.3%.
Retail
American Eagle Outfitters, Inc.AEO is a specialty retailer of all-American casual apparel, accessories, and footwear for men and women.
This Zacks Rank #1 company has a Growth Style Score of 'A.' AEO has a current year growth estimate of 66.3%, higher than the industry growth rate of 5.1%.
Food Services & Drinking Places
BJ's Restaurants, Inc.BJRI owns and operates casual dining restaurants under the BJ's Restaurant and Brewery, BJ's Restaurant and Brewhouse or BJ's Pizza & Grill brand names.
This Zacks Rank #1 company has a Growth Style Score of 'A.' BJRI has a current year growth estimate of 61.4%, higher than the industry growth rate of 14%.
Construction
Lennar Corp.LEN is one of the nation's leading builders of quality homes for all generations, building affordable, move-up and retirement homes.
This Zacks Rank #2 company has a Growth Style Score of 'B.' BJRI has a current year growth estimate of 19.4%, higher than the industry growth rate of 16.7%.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
