Last Friday’s nonfarm payrolls data revealed that the U.S. job market has improved even further. Greater-than-estimated job additions indicate that the economy is on a firm footing. Winter’s frost has thawed and summer brings the promise of more job additions for the leisure sector. This also promises gains for companies in this sector, which will cash in during this period.
Record Job Additions
The U.S. economy created a total of 280,000 jobs in May, well above the consensus estimate of 222,000. This was also significantly higher than April’s job number of 85,000. These were the largest job additions since Dec 2014.
The increase in hiring was widespread in May. Professional and business services, leisure and hospitality, and healthcare added the most number of jobs. Jobs in professional and business services increased by 63,000 in May and by 671,000 on a year-over-year basis. Jobs in healthcare increased by 47,000. These two areas have remained the powerhouse of the job market revival.
Unemployment Edges Up, Earnings Improve
The unemployment rate came in at 5.5% in May, marginally higher than the 5.4% recorded in April. This was also slightly higher than the consensus estimate of 5.4%. Large inflow of people in the labor force was cited to be reason behind this slight uptick in unemployment rate.
Additionally, the average hourly earnings gained 0.3% in May from previous month’s figure to $24.96 per hour, higher than the consensus estimate of a 0.2% rise. Average hourly earnings witnessed a 2.3% rise from the year-ago figure, the highest rate since Aug 2013.
Jobless Claims Decline
The continual decline in initial claims is another indicator that the labor market has improved significantly. Initial claims declined 8,000 for the week ending May 30 to 276,000, lower than the consensus estimate of 279,000. For the 13th straight week, claims for unemployment benefits remained below the key level of 300,000. Meanwhile, the 4-week moving average increased 2,750 from previous week’s level to 274,750.
An upbeat jobs report indicated the economy was on a solid footing, giving the Federal Reserve an option to raise interest rates this fall. However, expectations of a hike in borrowing costs as early as September raised concerns among investors.
Summer to Boost Leisure Activity
Leisure and hospitality added 57,000 jobs in May. The two previous months had witnessed negligible job additions. Food services and drinking establishments have hardly added any jobs over the last three months. In contrast, arts, entertainment and recreation provided 29,000 more jobs in May.
The summertime is great for outdoor activities for young and old alike. From boating to rock climbing, there are a million things to do during the summer. As an investor one should attempt to be ahead of the trends, and therefore identify companies that will benefit from seasonal purchases.
With oil prices still low, and a strong dollar, people will have extra money and stronger purchasing power this summer season. This should translate into more leisure activity for Americans, and therefore more purchases of leisure items this summer.
Our Choices
Below we present three stocks which will gain from these trends, each of which also have a good Zacks Rank.
Malibu Boats, Inc. (MBUU - Snapshot Report) designs, manufactures and markets sport boats primarily in the United States.
Malibu Boats holds a Zacks Rank #1 (Strong Buy). The company has expected earnings growth of 90.9% for the current year. The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 20.35.
Pool Corp. (POOL - Analyst Report) is the world's largest wholesale distributor of swimming pool supplies, equipment and related products.
Apart from a Zacks Rank #2 (Buy), Pool Corp. has expected earnings growth of 15.7% for the current year. It has a P/E (F1) of 24.24x compared to the industry average of 36.40x.
Brunswick Corporation (BC - Snapshot Report) is a manufacturer and marketer of leading consumer brands in four segments: Marine Engines, Boats, Fitness and Bowling & Billiards.
Brunswick holds a Zacks Rank #2 (Buy) and has expected earnings growth of 17% for the current year. It has a P/E (F1) of 18.13x.
Job additions data has raised the specter of rate hike fears once again. At the same time, leisure companies are poised to notch up gains. This is why these stocks would make for a prudent choice.
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