The business services sector is usually directly proportional to the broader economy, which is currently quite favorable. A rise in GDP, an improving employment scenario, inflation approaching 2%, easing of the U.S. dollar and momentum in oil prices are all signs of improvement in the U.S. economy, which in turn should boost the business service sector. Trump’s business-friendly policies, including tax cuts, and repeal of regulations are additional tailwinds.

Further, earnings and revenues from the sector are likely to improve in the first quarter, which makes it a good idea to pick select business services stocks that have outperformed the market in March and are poised to carry on the momentum.

Stronger GDP — A Key Catalyst

Gross Domestic Product (GDP) grew at a seasonally adjusted annual rate of 2.6% in the fourth quarter of 2017, following gains in the previous two quarters of more than 3%, per the “advance” estimate released by the Bureau of Economic Analysis. This marked the economy’s strongest stretch of growth since the expansion started in mid-2009.

Per the U.S. Energy Information Administration (EIA), gross domestic product is estimated to increase in the upcoming quarters. GDP growth is now expected to accelerate 2.4% in 2018 and 2019, better than 2.3% in 2017.

This favorable outlook for the U.S. economy is a net positive for the business service sector. No doubt the Zacks Business Services sector has been a strong performer, gaining 15.7% in a year, outperforming the S&P 500 index’s 12.5% gain.

ISM Services Gauge Records 98^th Month of Expansion

In March, ISM Services Index stood at 58.8%. Any level above 50 signifies expansion for the sector and going by that benchmark, this is the 98th consecutive month of expansion. The Prices Index and the Employment Index gained 0.5% and 1.6% to hit 61.5% and 56.6%, respectively. As many as 15 non-manufacturing industries reported growth.

Q1 Earnings Expectations Strong

Total Q1 earnings for the sector are expected to be up 10.7% on 4.8% higher revenues as of Mar 16, 2018. That’s better than the more vaunted conglomerate sector, earnings for which are expected to decline 9.8%. Overall, total Q1 earnings for the S&P 500 are expected to be up 16% from the same period last year on 7% higher revenues. This is the highest quarterly earnings growth rate in seven years. (Read: Looking Ahead to the Q1 Earnings Season)

Stocks Riding on These Trends

Leading executive recruitment firm Korn/Ferry International (KFY - Free Report) gained a massive 24.5% in March, significantly outperforming its industry’s 3.4% rally. This Zacks Rank #1 (Strong Buy) stock has surpassed the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average positive surprise of 8.1%.

Based on the consensus estimate, we expect Korn/Ferry to finish its fiscal 2018 with EPS growth of 17.4% and sales growth of 11.6%.

Professional, technical consulting and certification solutions provider NV5 Global, Inc. (NVEE - Free Report) also sports a Zacks Rank #1.  It rallied 24% in March against its industry’s decline of 0.9%. The company surpassed the consensus estimate in each of the trailing four quarters, delivering an average positive surprise of 5.8%. Its expected EPS and revenue growth rates for 2018 are 29% and 18.4%, respectively.

Economics, finance, and business consulting firm CRA International, Inc. (CRAI - Free Report) rallied 4% in March against the 0.9% decline of the industry it belongs. The company also sports a Zacks Rank #1 and has outpaced the consensus mark in three of the last four quarters with an average positive surprise of 28%. The company’s expected earnings growth rates for the first quarter and 2018 are 51.5% and 12.6%, respectively.

Another #1 Ranked company, building systems provider Limbach Holdings, Inc. (LMB - Free Report) has returned 3.2% against the industry’s gain of 1.2%. The company’s expected EPS and revenue growth rates for 2018 are 395.5% and 6.2%, respectively.