Per the latest report from the United States Department of Commerce, construction spending surged to its highest settlement since January 2016. This also marks its biggest increase since 2012. The construction market in the United States has been looking up for some time now. Per the U.S. Chamber of Commerce’s Commercial Construction Index, 93% of the total contracts in the country would witness a surge in profit margins by 2019.
Further, broad-based factors like low levels of unemployment, strong job additions in the construction sector and positive consumer confidence have been instrumental in propelling the sector’s growth. Taking such factors into consideration, investing in stocks from the sector would fetch spectacular returns.
U.S. Construction Activity Springs Back to Life
Construction spending in the United States rose 1.8% in April compared to a slump of 1.7% in March. The seasonally adjusted spending rate of $1.31 trillion in April was about 7.6% higher than the same period a year ago. Also, the consensus estimate for the month of April was an increase of 0.8%.
Such an increase was made possible by increased spending on private construction projects, which steadily rose to 2.8% in April. This marked its biggest increase since January 2012. Further, the outlays on private residential construction surged 4.5% to its highest settlement since November 1993. This followed a decline of 4.1% in the previous month.
This apart, outlays on non-residential construction jumped 0.8% in April. Investment in public construction witnessed a decline in the month, falling 1.3% from an increase of 1.2% in March. Further, outlays on construction projects by the federal government fell sharply by 10.2% after increasing close to 2% in March.
Steady Job Additions in Construction
Per the latest data from the Bureau of Labor Statistics, a total of 25,000 new jobs were added to the economy by the U.S. construction industry alone. Per the Associated Builders and Contractors’ (ABC) analysis of this data, approximately 286,000 jobs were added by the sector on a year-over-year basis. This marked its biggest increase since April 2016.
Further, the Bureau of Labor Statistics also stated that in April, the construction industry offered an average weekly wage of $1,170.39, higher than the overall weekly average of $925.98.
Moreover, unemployment rate in the sector declined about 2.1 percentage points to 4.4% in May. This marks its lowest level since July 2000. What also added to the gains was the fact that national unemployment rate plummeted to 3.8% in May — its lowest settlement since April 2000.
5 Hot Choices
With construction spending rising to its highest levels in as many as 28 months, the space is poised to gain immensely in the days ahead. Not only did the sector hire more in April, it also offered steeper wages than the overall average. Further, Trump's business-friendly policies, including tax cuts and repeal of regulations have propelled the sector’s growth.
The Zacks Construction sector is currently placed in the top 13% out of the 16 Zacks sectors. In this context, we have selected five stocks that are expected to gain from these factors. These five stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Patrick Industries, Inc. PATK is a manufacturer and seller of building materials and products in the United States and Canada.
The company is based out of Elkhart, Indiana and has a Zacks Rank #1. The expected earnings growth rate for the current year is 41.75%. The Zacks Consensus Estimate for the current year has improved 8.2% over the last 60 days.
Norbord Inc. OSB is a producer of wood-based panels for industrial manufacturers, retail chains as well as contractor supply yards.
The company is based out of Toronto, Ontario and has a Zacks Rank #1. The expected earnings growth rate for the current year is 0.22%. The Zacks Consensus Estimate for the current year has improved 26.8% over the last 60 days.
Sterling Construction Company, Inc. STRL is engaged in civil as well as residential construction across the United States.
The company is based out of The Woodlands, Texas and has a Zacks Rank #2. The expected earnings growth rate for the current year is 70.91%. The Zacks Consensus Estimate for the current year has improved 3.3% over the past 60 days.
Boise Cascade Company BCC is a manufacturer and distributor of wood products and construction and building materials.
The company is based out of Boise, Idaho and has a Zacks Rank #1. The expected earnings growth rate for the current year is 74.70%. The Zacks Consensus Estimate for the current year has improved 25.1% over the last 60 days.
United Rentals, Inc. URI provides equipment rental services to construction companies across the globe.
The company is based out of Stamford, Connecticut and has a Zacks Rank #2. The expected earnings growth rate for the current year is 46.24%. The Zacks Consensus Estimate for the current year has improved 2.4% over the past 60 days.
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