Investment Contrarians

What the Latest Job Creation Data Indicate for This Market Sector

By for Investment Contrarians |

Job Creation Data Indicate for This Market SectorThe latest data on job creation by the Bureau of Labor Statistics (BLS) are interesting for several reasons. While there are some glimmers of hope, there is still much more work that needs to be done.

For April, job creation improved by 165,000, with the 12-month average now at 169,000 per month. The long-term unemployed level continues to be high, although it is decreasing. Currently, there are 4.4 million long-term unemployed, a decrease of 258,000 during the month of April. This lowered the percentage of long-term unemployed to 37.4% of the overall unemployed, down 2.2% for the month. Another important metric is the participation rate, which remained at 63.3% and is at historically low levels.

Clearly, economic growth needs to accelerate for job creation to continue moving upward. The participation rate remains quite low, and the large number of long-term unemployed is stubbornly high.

The market reacted positively, not only from the headline number, but also the extremely large positive revisions to the previous months of job creation data. While economic growth appears to be slowing, jobs data were much stronger than previously reported, with February and March job creation data revised upward by 64,000 and 50,000, respectively, from the initially reported data.

Do these data indicate any sectors worth investing in?

Yes; as the healthcare industry continues with a steady pace of job creation, with 19,000 newly employed in April, this brings the 12-month average for job creation in the healthcare industry to 24,000 per month. As an investor, with economic growth still relatively anemic nationwide, it appears the healthcare industry will continue on its upward trajectory.

The new healthcare law is creating a positive push into the healthcare industry, which should remain quite strong, regardless of economic growth. However, healthcare stocks are benefiting in more ways than simply through “Obamacare.” Demographics internationally are pointing to an aging population worldwide. This means more demand for healthcare products and services.

While economic growth globally remains sluggish, job creation will most likely continue in the healthcare field, as demand appears to be increasing over the next several decades.

A stock chart of the S&P 500 Health Care Index is featured below:

HCX S and P Healthcare Index Chart

Chart courtesy of www.StockCharts.com

This chart of the S&P 500 Health Care Index clearly shows that even in a situation of relatively slow economic growth, there are areas in which an investor can still generate strong returns. By looking at the steady increase in the number of jobs created over the past year in the healthcare industry, it’s clear that these firms are continuing to build their levels of employees due to increased expectations of future growth.

Although the current level of healthcare stocks is quite high, I would certainly look at accumulating on significant pullbacks. While economic growth may or may not accelerate, the job creation data for the healthcare industry show that the firms within this field believe that the future offers significant potential.

As the world population grows older, there will be increased sickness and demand for medications. While this is often a sensitive subject, the facts remain that there will be a huge number of people moving into the older age bracket, and that highly populated age bracket will benefit healthcare stocks and their shareholders. At this time, though, I would prefer to wait for a pullback and a more attractive price point.

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