5 Business Services Picks to Defy Dismal Jobs Data

Job additions in the United States slowed significantly in May, raising fresh questions about the state of the economy. Wage increases also came in below expectations, leading economists to predict that a rate cut is in the offing. The broad-based decline in hiring occurred before a step-up in U.S.-China trade tensions, which is likely to act as a drag on the economy.

However, things aren’t as dismal as they seem at first glance. Firstly, unemployment remains at a 50-year low. A broader measure of joblessness declined to a near 20-year low. Further, layoffs remain low and the current pace of job gains is high enough to absorb the growth in the working-age population.

Professional and business services remain at the forefront of job gains. Adding stocks from this sector looks like a smart choice at this point. However, picking winning stocks may prove to be difficult.

Unemployment Remains at 50-Year Low

The U.S. economy added only 75,000 jobs in May, significantly lower than the consensus estimate of 180,000. This is the second time in four months that job additions have come in under the 100,000 mark. Further, job gains for the preceding two months were revised downward.

Job additions for March were reduced from 189,000 to 153,000. Meanwhile, April’s jobs numbers were lowered from 263,000 to 224,000. This has effectively resulted in a reduction of 75,000 jobs from the preceding two months.

But it isn’t all doom and gloom on the jobs front. In keeping with forecasts, the unemployment rate remained at 3.6%, the lowest level recorded since 1969.  The U6 unemployment rate, which includes people forced into part-time work and people only sporadically looking for jobs, declined from 7.3% to 7.1%, the lowest level since December 2000.

Professional and Business Services Lead Gains

At the forefront of job gains were healthcare, and the leisure and hospitality sectors, which added 16,000, and 26,000 jobs, respectively. However, the largest contributor to job additions was professional and business services with 33,000 new jobs. The sector has added 498,000 jobs in the last 12 months.

These have been the three-fastest growing sectors for the economy during the current nearly decade-long economic expansion. This comes as no surprise as services have remained a bright spot even as trade-related conflicts weigh on the broader economy.

After two straight months of decline, the ISM services index staged a strong rebound in May. The gauge hit 56.9% last month, exceeding both the consensus estimate of 55% and April’s reading of 55.5%. It was also the second-highest reading for the year with 16 service-oriented industries registering an expansion.

Our Choices

May’s dismal job figures have come as a bolt from the blue, leading to fresh concerns about the U.S. economy. However, the unemployment rate remains at a 50-year low and other gauges of jobless have registered a decline. This could likely be a temporary blip before the jobs market resumes its robust trajectory.

Professional and business services remain at the forefront of job gains. Adding stocks from this sector looks like a smart choice at this point. However, picking winning stocks may prove to be difficult.

This is where our VGM Score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score. 

We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM Score.

Blucora, Inc. BCOR provides technology-enabled financial solutions to consumers, small businesses and tax professionals.

Blucora has a Zacks Rank #1 (Strong Buy) and VGM Score of A. The company has expected earnings growth of 15.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 8.9% over the past 60 days.

Limbach Holdings, Inc. LMB is a provider of commercial specialty contract services.

Limbach Holdings has a Zacks Rank #1 and VGM Score of B. The company’s expected earnings growth for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved by 35.7% over the past 30 days.