The year 2014 was the strongest for the labor market in the last 15 years in terms of new job additions. According to the U.S. Department of Labor, the US economy created 2.95 million new jobs in 2014, its highest tally since 1999.
It was also reported last Friday that the economy generated 252,000 jobs in December, ahead of the consensus estimate of 237,000. The economy had created more than 200,000 jobs in every month of 2014, except in January and August.
Record Low Unemployment Rate
The unemployment rate declined to six and a half year low of 5.6% in December, as against 6.6% in Jan 2014. Also, the number of new jobs added in November and October were revised upward. The economy had added 261,000 and 353,000 new jobs in October and November, respectively.
The professional and business services sector was the biggest recruiter in December. The sector generated 52,000 new jobs, out of which 35,000 jobs were created by administrative and waste services. The construction sector was the second best performer in terms of job additions in December. The sector added 48,000 new jobs, its biggest increase since Jan 2014. The food services and drinking places added 44,000 jobs in December, higher than the monthly average of 30,000 in 2014.
Lingering Concerns
Though the unemployment rate declined to a record low, it is also true that a drop in the labor participation rate was also an important factor behind the decline. The civilian labor force participation rate decreased 0.2% to 62.7% in December, reaching its lowest level since 1978. Sluggish growth in wages was one of the main reasons for the decline in participation rate.
The average hourly earnings contracted 0.2%, or 5 cents, in December to $24.57, contrary to the consensus estimate of a 0.2% rise. The decline was preceded by 0.4% growth in average hourly earnings in November.
The year-on-year growth in average hourly wages came in at only 1.7% in December. This indicates that while the overall employment picture is indeed looking positive, most of the jobs being added to the workforce are of the low-wage variety. However, analysts expect that the favorable economic scenario will help the labor market to recover from weak wage growth.
Favorable Economic Scenario
The US economy outperformed the key global economies over the major part of 2014. Starting from the 2.9% contraction in first quarter GDP, the economy gradually gained strength to witness 5% growth in third quarter GDP. Recovery in the overall economic environment also allowed the US Federal Reserve to terminate the third round of bond repurchases.
This encouraging growth picture had played an important role in the recovery of the labor market. It is speculated that the economy will continue to generate jobs at impressive rates this year and may achieve the Fed’s target of 5.2% unemployment rate by the end of 2015.
Job Addition & Unemployment Rate in 2014
The following chart shows the trend of job additions in the US economy and the trend of unemployment rate in 2014:
|
Months |
Job Additions |
Unemployment Rate |
|
January |
144,000 |
6.6% |
|
February |
222,000 |
6.7% |
|
March |
203,000 |
6.7% |
|
April |
304,000 |
6.3% |
|
May |
229,000 |
6.3% |
|
June |
298,000 |
6.1% |
|
July |
243,000 |
6.2% |
|
August |
180,000 |
6.1% |
|
September |
271,000 |
5.9% |
|
October |
261,000 |
5.8% |
|
November |
353,000 |
5.8% |
|
December |
252,000 |
5.6% |
Our Choices
Increased job additions and expectations of this trend continuing should keep the staffing companies busy. These companies are poised to gain from increased job creation in the economy. In this scenario, here are the three staffing companies that may gain:
Resources Connection Inc. (RECN) is a professional services firm that provides experienced accounting and finance, human resources management, and information technology professionals to clients on a project-by-project basis. On Jan 7, the company reported second quarter earnings per share of 22 cents, beating the Zacks Consensus Estimate of 16 cents.
This Zacks Rank #1 (Strong Buy) company has a solid next year EPS growth estimate of 14%. The company also has a forward price to earnings (PE) ratio of 23.71. The Zacks Consensus Estimate for the current year EPS has been revised almost 3% upward over the last two months.
Korn/Ferry International (KFY) is one of the world's leading and largest executive recruitment firms with the broadest global presence in the executive recruitment industry. This Zacks Rank #2 (Buy) company provides executive recruitment services exclusively on a retained basis and serve the global recruitment needs of clients from middle to executive management.
This company has next year EPS growth estimate of 5.5%. The company also has an impressive forward PE ratio of 15.04. The Zacks Consensus Estimate for the current year EPS has been revised 3.9% upward over the last two months.
On Assignment Inc. (ASGN), through its first operating division Lab Support, is a leading nationwide provider of temporary scientific professionals to laboratories in the biotechnology, pharmaceutical, food and beverage, chemical, and environmental industries.
This Zacks Rank #2 (Buy) company has next year EPS growth estimate of 11.3%. The company also has an encouraging forward PE ratio of 14.20. The Zacks Consensus Estimate for the current year EPS has been revised 1% upward over the last two months.
Bottom Line
Labor market conditions recovered throughout 2014 and the economy had successfully added huge number of employment in most part of the year. This year’s outlook for the labor market is also very promising. Banking on this recovery and impressive outlook, these three staffing companies seem to be good choices to strengthen your portfolio.
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