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As the U.S. economy has gradually recovered from the depths of the 2008 financial crisis and Great Recession, jobs are starting to come back. One of the most important indicators of future economic conditions is the labor market, and fortunately, the U.S. continues to add new jobs at a solid pace.
The strong rate of job growth continued last month, when the U.S. added 215,000 jobs in March, according to the Bureau of Labor Statistics’ monthly report released on Friday.
Strong Jobs Report Sends Stocks Higher
After initially plunging more than 100 points, the Dow Jones Industrial Average was up nearly 100 points in midday trading and closed the day up 107.66 points, a 0.61% gain. The rally was based largely on the surprisingly strong March non-farm payrolls report. Economists on average expected 205,000 new non-farm jobs.
With last month’s job gains, the unemployment rate is now 5% in the United States. Although that is a slight uptick from 4.9% reported in the previous month, which was an eight-year low, it’s nevertheless a great sign for the U.S. economy. A 5% unemployment rate fulfills the Federal Reserve’s measure of full employment.
The reason why the unemployment rate increased slightly is because the labor participation rate increased. What that means is that more long-term unemployed individuals re-entered the workforce last month. That’s actually a good sign – a higher labor participation rate indicates more job seekers are confident enough to look for employment.
Separately, another economic indicator improved with last month’s jobs report. Average hourly earnings gained 7 cents in March, after declining slightly in February.
This was also a surprising report from the standpoint that certain sectors of the economy – namely energy and mining – continue to shed jobs at an alarming pace. The steep decline in commodity prices over the past two years put a huge dent in employment numbers in these areas, but it’s a good sign that the contagion has not spread to other industries of the economy.
Which Sectors Benefit From Strong Jobs?
The sectors that will benefit most from continued strength in the labor market are the housing and consumer discretionary industries. When Americans feel more confident about their jobs and their personal finances, they are more likely to buy homes and spend disposable income.
As a result, investors can look to D.R. Horton (NYSE: DHI) as a possible investment opportunity on strong U.S. job growth. The company is one of the biggest home builders in the country, and its momentum is accelerating along with the labor market.
Last quarter, D.R. Horton grew earnings per share by 11%, as net sales orders increased 12% year-over-year. Going forward, there are signs that demand for new home construction will continue – D.R. Horton ended last quarter with a $3.2 billion backlog, which was up 16%.
D.R. Horton is reasonably valued at 14 times earnings, and the stock offers investors a 1.1% dividend.
Another industry that could perform well on improving employment numbers is automotive sector. For example, General Motors (NYSE: GM) reported record net profit last year of $9.7 billion. Its positive momentum continued last month, when the U.S. auto industry had its best March in 16 years.
GM is a cheap stock, trading at just 5 times forward earnings estimates. And the stock offers a hefty 5% dividend yield.
Final Thoughts
Investors are worried about the stock market for a variety of reasons – including the strengthening U.S. dollar, slowing economic growth in the emerging markets and falling commodity prices. But none of these trends appear to be holding the U.S. economy back.
Instead, it seems that the real economy is actually benefiting from many of these factors. Consumers have more money to spend, and the tailwinds created by low commodity prices and a strong currency are starting to be reflected in the labor market.
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