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American Paychecks Are Getting Fatter: 5 Top Gainers

Tirthankar Chakraborty
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American Paychecks Are Getting Fatter: 5 Top Gainers

Economists expect wage growth to top 3% within a few months. And by early next year, it could edge toward this century's highest mark of 3.6%.

Bigger paychecks are coming in for millions of Americans, with August registering the fastest wage growth since 2009, suggesting tighter labor market conditions. The U.S. economy added jobs for the 95th straight month in August, but higher pay means companies are in tough competition for quality workers. Several business houses complained that they can’t find skilled labor and may need to raise wages considerably to draw and retain skilled labor.

Higher wage growth plays a significant role in driving consumer discretionary spending. Consumers have been ramping up their spending levels of late and have a rosier view of the future. Meanwhile, more the confidence households generate, the higher will be the amount they spend.

Thus, stocks of consumer discretionary companies are poised to move north on signs of renewed consumer spending strength.

Bigger Pay Hikes for Millions of Americans

This year, workers’ pay is poised to get better, thanks to a booming economy driven by tighter labor market conditions. Companies are struggling to find qualified workers to fill a record number of job openings. Thus, they are relying on better pay and benefits to retain skilled labors. Some of them are even desperate to keep baby boomers from retiring, while others are resorting to hiring ex-employees or suitable job candidates.

Some economists now expect wage growth to top 3% within a few months. And by early next year, it could edge toward this century’s highest mark of 3.6%. The average wage paid to American workers has already increased by 10 cents to $27.16 an hour last month. To top it, the yearly pay rate climbed to 2.9% from 2.7%, the highest since the end of the Great Recession.

Record Job Opening Amid Worker Shortages

As per the Labor Department’s monthly Job Openings and Labor Turnover Survey, U.S. job openings soared to a record high in July by 117,000 to a seasonally adjusted 6.9 million. That was the highest level since the series started in December 2000.

But, hiring remained little changed at 5.7 million in July. This shortage showed that industries struggled to find suitable workers. Finance and insurance industry, in particular, saw 46,000 unfilled jobs. Nondurable goods manufacturing had 32,000 vacancies.

Some may, however, argue that the jobless rate remained at an 18-year low of 3.9% in August, indicating that the nine-year stretch of economic expansion has scope to continue. But, the “real” rate of unemployment, better known as U6, has gone up to 7.4%. And it shows that there are quite a number of discouraged job seekers who have given up looking for work. At the same time, it indicates that there are many who would prefer full-time jobs but have settled for part-time jobs, a clear indication of scarcity of skilled workers.

Wage Growth to Boost Consumer Discretionary Spending

Nonetheless, this uptick in average hourly earnings dispels doubts that wage growth will remain lackluster. Lest we forget, workers’ compensation adjusted for inflation and taxes have already increased 1.4% to 1.9% over the past year, per analysis by the Council of Economic Adviser.

Among the economic factors that mostly affect demand for consumer discretionary goods is wage growth. If wages keep rising, consumers generally have more discretionary income to spend. In contrast, if wage growth falls or remains stagnant, demand for such goods decline.

Americans, in fact, haven’t been this confident about the economy in 18 years.As per the Conference Board, the consumer confidence index climbed to 133.4 in August from a revised 127.9 in July. The key economic indicator that measures attitudes on future economic prospects reached the highest level since October 2000 and surpassed the post-recession high of 130 scaled this February.

Consumer sentiment in September, in the meantime, climbed to the second-highest level since 2004, according to a University of Michigan survey. The preliminary report showed that the consumer sentiment index came in at 100.8. Such an upbeat reading will further help household spending to increase leaps and bounds.

5 Solid Choices

Courtesy of record wage growth and more confident consumers, discretionary spending levels will continue to rise. The consumer discretionary sector is, thus, poised to benefit the most as spending plays a major role in determining its revenues.

We have, thus, selected five solid consumer discretionary stocks that should make meaningful additions to your portfolio. These stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The search was also narrowed down with a VGM Score of A or B. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.

Guess', Inc. GES designs, markets, distributes, and licenses lifestyle collections of apparel and accessories for men, women, and children. The company has a VGM Score of A. In the last 60 days, three earnings estimates moved north, while none moved south for the next year. The Zacks Consensus Estimate for earnings rose 2.9% in the same period. The company’s projected growth rate for the current year is 48.6%, while the Textile - Apparel industry is expected to rise 17.9%.

Johnson Outdoors Inc. JOUT designs, manufactures, and markets outdoor equipment, diving, watercraft, and marine electronics products. The company has a VGM Score of A. In the last 60 days, one earnings estimate moved up, while none moved down for the next year. The Zacks Consensus Estimate for earnings rose 11.4% in the same period. The company’s projected growth rate for the current year is 46.4%, while the Leisure and Recreation Products industry is projected to rally 30.2%.

Rocky Brands, Inc. RCKY designs, manufactures, and markets footwear and apparel under the Rocky, Georgia Boot, Durango, Lehigh, and Michelin brand names. The company has a VGM Score of B. In the last 60 days, one earnings estimate moved north, while none moved south for the next year. The Zacks Consensus Estimate for earnings climbed 13.3% in the same period. The company’s projected growth rate for the current year is 46.7%, while the Shoes and Retail Apparel  industry is likely to rally 15%.

Malibu Boats, Inc. MBUU designs, manufactures, distributes, markets, and sells recreational powerboats. The company has a VGM Score of B. In the last 60 days, six earnings estimates moved up, while none moved down for the next year. The Zacks Consensus Estimate for earnings rose 12.9% in the same period. The company’s projected growth rate for the current quarter is 30.9%, while the Leisure and Recreation Products industry is expected to rise 7.2%.

Weight Watchers International, Inc. WTW provides weight management services. It offers a range of products and services comprising nutritional, activity, behavioral, and lifestyle tools and approaches. The company has a VGM Score of B. In the last 60 days, six earnings estimates moved north, while none moved south for the next year. The Zacks Consensus Estimate for earnings rose 2.4% in the same period. The company’s projected growth rate for the current year is 80.6%, while the Consumer Services - Miscellaneous industry is expected to rally 12.5%.

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Malibu Boats, Inc. (MBUU) : Free Stock Analysis Report
 
Johnson Outdoors Inc. (JOUT) : Free Stock Analysis Report
 
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