For a considerable period of time, the U.S. jobs market has been the economy's single most impressive sector. While other economic reports, including industrial production, durable orders and consumer spending, have been far from satisfactory, employment numbers have continued to improve.
This had prompted the Fed Chair to say that a possible rate hike in June can't be ruled out. But Friday's jobs report may have ruled out that option.
Only 126,000 jobs were added in March, nearly half of the number estimated by economists. This is the lowest number of job additions since Dec 2013. Additionally, data for both January and February was revised downward, which means that 69,000 less jobs were added during these months taken together.
Job additions also fell below 200,000, bringing to an end an unbroken run of 12 such successive monthly gains. Following March numbers, hiring for the first quarter stands at 197,000. This means that the decline in March is a cause for concern. Additionally, this compares unfavorably to the average of 289,000 job additions in last year's fourth quarter.
Dollar Gains, Oil Slump Affect Hiring
It seems that cheap oil and a strong dollar have combined to impede the recovery drastically. Caterpillar Inc. CAT has stated that the slump in oil will hit business this year. Meanwhile, The Procter & Gamble Company PG has warned that the rising dollar will hurt profits, since it makes goods relatively more costly.
The report substantially supports such statements with a reduction in hiring coming from sectors which produce goods. Hiring in mining has fallen by 11,000 in March. This is probably because nearly half of the rigs remain idle following the decline in oil prices . Meanwhile, employment in construction and manufacturing declined by 1,000 each last month.
Is This Just a Blip?
US Labor Secretary Thomas Perez conceded that March numbers were disappointing. However, he remained confident that the overall employment picture remained upbeat.
At first glance, several indicators immediately support such a conclusion. Unemployment rate remains flat at 5.5%. Additionally, a wider indicator of unemployment, which includes part time workers who would rather hold full-time jobs and discouraged workers, declined from 11% in February to 10.9%. However, this is still higher than the unemployment rate, indicating that underemployment, a legacy of the recession, is a lingering problem.
Again, labor force participation has declined to 62.7%, the lowest level since 1978. This is primarily because a large number of baby boomers are close to retiring. Wage growth is another bright spot of this jobs report. Average hourly earnings have advanced by 7 cents for those employed by the private sector in March. Additionally, hourly pay has increased 2.1% year-over-year.
But even Perez acknowledges that increase in wages "remains the unfinished business of this recovery." He emphasized that satisfactory wage increases for minimum wage employees was a cause for concern.
3 Healthy Choices
One clear takeaway from this jobs report is that it could lead to further market volatility, even if it is only a one-off disappointment. This means it may be wise to stick to safer choices. Healthcare continues to be one such safe play and its allure has increased in recent times.
This is because Obamacare and older baby boomers have provided a wider market for the sector. Also, healthcare has emerged as an excellent growth option this year. With year-to-date return of 5.3%, the Health Care Select Sector SPDR (XLV) is the highest performing sector of the S&P 500.
Below we present three stocks which will gain from these trends, each of which also has a good Zacks Rank. The attractiveness of these companies as an investment option at this stage is also confirmed by its Growth Style Score of 'A' or 'B'.
The Growth Style Score combines conventional growth metrics with a thorough analysis of the company's income statement, balance sheet and statements of cash flows to evaluate its financial health and the sustainability of its growth trajectory. Back-tested results show that stocks with Growth Style Scores of A or B when combined with Zacks Rank of 1 or 2 offer the best upside potential.
Horizon Pharma plcHZNP is a company specializing in biopharmaceuticals. It is a developer and marketer of products for unmet therapeutic requirements related to pain and inflammatory diseases.
Horizon Pharma holds a Zacks Rank #1 (Strong Buy) and has a Growth Style Score of 'A.' The company has expected earnings growth of 64.5%. The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 19.73.
RadNet, Inc.RDNT is a domestic market leader in providing high-quality, cost-effective diagnostic imaging services through a network of fully-owned and operated outpatient imaging centers.
Apart from a Zacks Rank #2 (Buy), RadNet has a Growth Style Score of 'A'. The company has expected earnings growth of 63.8% and has a P/E (F1) of 18.27x.
PRA Health Sciences, Inc.PRAH operates as a global contract research organization, providing outsourced clinical development services to the biotechnology and pharmaceutical industries.
PRA Health Sciences holds a Zacks Rank #2 (Buy) and has a Growth Style Score of 'B'. It has an expected earnings growth of 22.5% and has a P/E (F1) of 19.86x.
Several analysts believe it is too soon to say whether the labor market may experience tough times. While the next two jobs reports will be closely watched, it is prudent to stick to safe options in the interim. This is why these stocks would make for a prudent choice.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.