Rising prices, which have been hurting consumer spending, have been impacting almost every sector. This led to growth in the services industry slowing over the past few months. However, the services sector seems to be slowly gathering steam, leading to a rebound in services activity in November.
One of the primary drivers of this increase in services activity was the recent easing of price pressures and supply constraints, which suggest that the economy might not be in recession. Given this situation, business services stocks like IBEX Limited IBEX, Bowman Consulting Group Ltd. BWMN, ePlus Inc. PLUS and Live Nation Entertainment, Inc. LYV are likely to benefit in the near term.
Service Sector Activity Grows
The Institute for Supply Management said on Dec 5 that its services sector Purchasing Managers’ Index (PMI) increased to 56.5 in November, up 2.1% from October’s reading of 54.4 and an 11-month high in business activity. This was also above economists’ forecast of a decline in the services sector PMI to 53.3.
A reading of anything above 50 suggests an increase in service activities. The services sector has now grown for the 30th consecutive month. A jump in services activity suggests that the economy may not yet have given in to inflationary pressures, given that manufacturing output has been dropping and consumer spending has become more restrained as a result of rising commodity prices.
Also, the Business Activity Index also came up with an impressive reading of 64.7% in November, increasing 9% from October’s reading of 55.7%. However, the New Orders Index declined marginally by 0.5% to 56%.
The Prices Index came up with a reading of 70%, declining 0.7% from October.
Wage Increase, Higher Spending Help Services Sector
Thirteen service industries that include healthcare, retail trade, and construction along with professional, scientific, and technical services, reported growth in November.
The ISM Services PMI follows a solid jobs report released last week. The report showed that more jobs continue to get added to the economy. Alongside, wages have been increasing. This saw both personal income and spending increase in October.
The Commerce Department said on Dec 1 that personal spending increased a solid 0.8% in October, while personal income also rose 0.7%. Also, disposable personal income increased 0.7% in October.
This has raised fears that the Fed will continue with its steep rake hike policy, which might further slow economic growth. However, higher purchasing power is helping people to spend at ease, giving the services sector a boost.
Consumers have once more started to spend more on services than on goods. During the epidemic, people spent more money on goods, which slowed down business activity. However, after the economy began to recover, services activity started to take off.
This could be yet another factor contributing to the slowdown in the manufacturing and retail sectors. Manufacturing activity contracted for the first time in November in more than two and a half years. Business activity is expected to grow even more in the coming months on higher demand. A decline in prices should help the industry even more.
The present situation makes for an ideal opportunity to invest in these four stocks.
IBEX Limited is a provider of outsourced CX solutions. It offers customer support, technical support, inbound/outbound sales, business intelligence and analytics, digital demand generation and CX surveys, and feedback analytics service. IBEX is based in Washington.
IBEX Limited’s expected earnings growth rate for the current year is 11.4%. The Zacks Consensus Estimate for current-year earnings has improved 2.8% over the past 60 days. IBEX presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Bowman Consulting Group Ltd. provides planning, engineering, construction management, commissioning, environmental consulting, geomatics, survey, land procurement and other technical services to customers operating in a diverse set of regulated end markets. BWMN is headquartered in Reston, VA.
Bowman Consulting Group’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 42.9% over the past 60 days. BWMN presently sports a Zacks Rank #1.
ePlus Inc. is a leading provider of technology solutions. PLUS enables organizations to optimize their IT infrastructure and supply chain processes by delivering world-class IT products from top manufacturers, professional services, flexible lease financing, proprietary software, and patented business methods.
ePlus’ expected earnings growth rate for the current year is 1.4%. The Zacks Consensus Estimate for current-year earnings has improved 4.5% over the past 60 days. PLUS presently carries a Zacks Rank #2 (Buy).
Live Nation Entertainment, Inc. operates as a live entertainment company. LYV operates through Concerts, Ticketing, and Sponsorship and Advertising segments. The Live Nation Entertainment has more than 580 million fans across all of its concerts and ticketing platforms in 46 countries.
Live Nation Entertainment’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 24.5% over the past 60 days. LYV currently has a Zacks Rank #2.
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