Unemployment Hits 50-Year Low: 6 Business Services Picks

In April, the unemployment rate declined to its lowest level in nearly 50 years. Job additions came in significantly above expectations, indicating that economic expansion has retained steam even when it is only months short of becoming the longest in history. The report also provided fresh evidence that the economy is beginning to gather momentum after a quiet start to the year. 

Meanwhile, the pace of wage growth came in below expectations. However, the increase in wages exceeded inflation, indicating an improvement in real wages. Additionally, the real unemployment rate remained flat over the month. Once again, professional and business services led job gains. This is why it makes sense to add stocks from this domain to your portfolio.

Unemployment Lowest Since 1969

Last month, the unemployment rate declined from 3.8% to 3.6%. This is the lowest level registered since December 1969 and significantly better than the estimated rate of 3.8%. The U6 unemployment rate, which includes people forced into part-time work and people only sporadically looking for jobs, remained flat at 7.3%, a level where it has lingered since February.

Meanwhile, average hourly earnings increased 6 cents to $27.77. However, the monthly increase of 0.2% came in below expectations of a 0.3% increase. But the year-over-year increase in earnings remained flat at 3.2%. The average workweek also declined from 34.5 hours to 34.4 hours.

This decline in working hours per week helped to boost average hourly pay. Further, the yearly pace of wage growth is well above the current pace of inflation of 1.9%, implying that workers are enjoying an increase in real wages.

Professional and Business Services Lead Gains

The economy added 263,000 jobs in April, significantly higher than the consensus estimate of 189,000. This marks the 100^th consecutive month of job growth for the U.S. economy. Further, since the Great Recession ended in 2009, the economy has created more than 20 million jobs. While some characterize the pace of the current expansion as slow, this could actually add to its durability. 

Job gains for preceding months were revised upward overall. Job additions for March were reduced from 196,000 to 189,000. Meanwhile, February’s jobs numbers were increased from 33,000 to 56,000, taking the net gain for the two prior months to 16,000. Jobs gains have maintained an impressive monthly average of 205,000 in the year-to-date period.

At the forefront of job gains were, construction, healthcare, social assistance and financial activities, which added 33,000, 27,000, 26,000 and 12,000 jobs, respectively. However, the largest contributor to job additions was professional and business services with 76,000 new jobs. The sector has added 535,000 jobs in the last 12 months.

Our Choices

Job additions for April have exceeded expectations by a wide margin. Meanwhile, the unemployment rate is plumbing fresh lows even as wage gains continue unhindered. Further, job gains for the last two months have also been revised upward. Taken together, these are signs that the economy is picking up after a slow start to the year.

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.

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

Limbach Holdings has a Zacks Rank #1 (Strong Buy) and VGM Score of A. 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 31.9% over the past 30 days.

Herman Miller, Inc. MLHR is a major American manufacturer of office furniture, equipment and home furnishings.

Herman Miller has a Zacks Rank #1 and VGM Score of B. The company has expected earnings growth of 24.1% for the current year. The Zacks Consensus Estimate for the current year has improved by 3.6% over the past 60 days.