Activities in the service side of the U.S. economy, where majority of Americans work, picked up in September. The Institute for Supply Management’s (ISM) non-manufacturing index (NMI) rose to 57.8% in September from 56.9% in August.
The index has now expanded for the fourth straight month following contraction in the months of April and May. Before April, the index expanded for a staggering 122 consecutive months. Understandably, more than a few service-oriented companies were shut down in April and May when the coronavirus pandemic hit the economy hard. However, as the country slowly continued to reopen, service sector activity started to pick up.
Coming back to the September data, the index’s reading is actually just above February’s reading of 57.3%, indicating that the service side activity is currently above the level that prevailed before the pandemic affected the country.
Notably, the recent expansion in the non-manufacturing sector does show that the economy is on track for steady growth this year. Needless to say, the non-manufacturing sector accounts for a bulk of the broader economic activity. Also, any reading above 50 indicates that the sector is growing.
Moreover, improvement in the service side of the economy is much in line with the expectation of a bounce back in the third-quarter economic growth, which followed a terrible plunge in GDP in the April-June quarter. Goldman Sachs now expects the third quarter GDP to be 35%, mostly on strong consumer outlays.
Nonetheless, service-oriented business activity also increased for the fourth successive month in September. The business activity index climbed to 63%, showing an uptick of 0.6% from August’s reading of 62.4%. Respondents surveyed by the ISM said that “resuming projects placed on hold due to COVID-19” mostly led to an increase in business activity.
Similarly, the new orders index came in at 61.5% for September, reflecting an increase of 4.7% from August’s reading of 56.8%. New orders for the service industry increased for the fourth straight month primarily on improvement in business activity. At the same time, service-oriented companies ramped up hiring last month, a tell-tale sign that the service side of the economy is buzzing. The non-manufacturing employment index jumped to 51.8% from 47.9% in August. What’s more encouraging is that employment in the service space grew in September following six successive months of contraction. Respondents said that “calling back furloughed employees due to higher surgical volumes” led to improvement in employment activity.
Top 5 Gainers
With the service sector showing steady signs of improvement as the economy continue to reopen following a spring shutdown, investing in some sound stocks from the said sector won’t be a bad proposition. We have, thus, selected five stocks that should make meaningful additions to your portfolio. These stocks flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). 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.
CoreLogic, Inc. CLGX is a leading provider of property information, analytics, and data-enabled software platforms and services. The company currently has a Zacks Rank #1 and a VGM Score of B. The Zacks Consensus Estimate of its current-year earnings has moved up 4.6% over the past 60 days. The company’s expected earnings growth rate for the current year is 35.7%.
Focus Financial Partners Inc. FOCS provides wealth management services. The company currently has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate of its current-year earnings has risen 6.9% over the past 60 days. The company’s expected earnings growth rate for the current year is 23.5%.
The Ensign Group, Inc. ENSG provides health care services in the post-acute care continuum, urgent care center and mobile ancillary businesses in the United States. The company currently has a Zacks Rank #2 and a VGM Score of B. The Zacks Consensus Estimate of its current-year earnings has climbed 20.1% over the past 60 days. The company’s expected earnings growth rate for the current year is 36.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Brookfield Business Partners L.P. BBU owns and operates business services and industrial operations. The company currently has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate of its current-year earnings has advanced 4.1% over the past 60 days. The company’s expected earnings growth rate for the current year is more than 100%.
CoreMark Holding Company, Inc. CORE is one of the largest marketers of fresh and broad-line supply solutions to the convenience retail industry in North America. The company currently has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate of its current-year earnings has moved 3.4% north over the past 60 days. The company’s expected earnings growth rate for the next year is 22.1%.
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