Recently released economic data indicated that the labor market is witnessing robust recovery. A significant decline in the initial claims figure released Thursday further reaffirmed the strong improvement. Several sectoral data published lately showed that the retail and housing sectors are gaining the most from this improving labor market trend.
Steady Labor Market
The U.S. Department of Labor reported that jobless claims declined from the prior week’s level of 279,000 to 267,000 for the week ending June 13, significantly below the consensus estimate of 276,500. This marked the fifteenth consecutive week of initial claims tally remaining below 300,000, marking its lengthiest stretch below this level in nearly 15 years.
Meanwhile, according to nonfarm payroll data released earlier this month, the economy created a total of 280,000 jobs in May, witnessing the largest job addition since Dec 2014. Also, except for March, the labor market witnessed healthy job additions throughout the year after creating nearly 2.95 million jobs in 2014 – its highest in 15 years. Though the unemployment rate marginally rose to 5.5% in May, the rate is expected to decline gradually to Fed’s target this year. Average hourly wages also saw an impressive year-on-year gain of 2.3%, indicating a strong recovery in labor market conditions.
Trending Sectors
Retail
Retail is one of the main sectors to benefit significantly from the steady labor market this quarter. Last week, the U.S. Department of Commerce reported that retail sales increased 1.2% in May from the previous month to $444.9 billion, significantly higher than April’s revised gain of 0.2%. It was also reported that retail sales rose 2.1% year over year through the March to May period. Meanwhile, March’s gain was revised upward to 1.5%, marking the highest monthly gain in almost five years.
Separately, the University of Michigan and Thomson Reuters’ preliminary reading of consumer sentiment was at 94.6 in June. This was more than the consensus forecast of an increase to 91.2 as well last month’s figure of 90.7. Another report released this month also revealed that consumer credit increased at a seasonally adjusted annual rate of 7.25% in April. All of these data go to show that the economy is on a solid footing.
Impressive recovery in this sector is likely to have a positive impact on retail ETFs including Market Vectors Retail ETF (NYSE:RTH) and SPDR S&P Retail ETF (NYSE:XRT). While RTH carries a Zacks ETF Rank #1 (Strong Buy), XRT holds a Zacks ETF Rank #2 (Buy). Hence, investors may bet on these two ETFs to gain from the improving retail environment.
Housing
This is another sector that has rebounded strongly in the second quarter overcoming the negative impact of a harsh winter in the first banking largely on strong labor market conditions. The National Association of Home Builders (NAHB)/Wells Fargo housing market index rose five points from May to 59 in June, in line with the September 2014 reading. September’s reading was, by the way, the highest since Nov 2005. This was also the highest reading in the last nine months.
Despite a decline in housing starts, most of the housing data released recently reveals that the housing sector is ready to make considerable gains. While building permits have hit a near six-year high in May, U.S. construction spending touched its highest level in more than six years in April. Separately, a significant rise in home prices also signaled an increase in demand in the housing market.
Housing market recovery in the second quarter boosted homebuilder ETFs like PowerShares Dynamic Building and Construction (NYSE:PKB) and SPDR S&P Homebuilders ETF (NYSE:XHB). In the past three months, PKB and XHB gained around 5.2% and 2.3%, respectively. Both these ETFs carry a Zacks ETF Rank #3 (Hold). These ETFs are likely to gain further on a brighter outlook on housing and are thus likely to remain on investors’ radar.