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Stock Strategist Industry Reports

Five Picks for a Dour Employment Market

These employment-related stocks have the strength to withstand a turbulent job market.

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"Help Wanted" signs have been a rare sight over the past year. Most businesses have lowered their employee headcount over the last 12 months due to the current recession. Unfortunately, this trend will continue affecting most sectors of the economy and this is especially true for firms that provide employment-related services. Thus, understanding how high the unemployment rate could climb is key to forecasting what could happen to the employment-related firms in our coverage universe. Obviously the situation is dynamic, and things may improve or worsen at any moment. In this article, we will provide our analysis and our conclusions as to where the rate could possibly go. We will examine how certain data points have behaved in the past, and we'll try to determine where those datapoints are telling us things may be headed. We will also point out firms that we believe offer great value for investors and others that may not.

The Rise of Unemployment
Watching the employment market over the last year has been as painful as watching former Illinois Governor Rod Blagojevich publicly defend himself against corruption charges. The unemployment rate has moved up 260 basis points to 7.6% as of January 2009 from 5.0% as of January 2008. The catalysts for this movement came in two stages. First, the real estate bubble burst, and this caused year-over-year job losses related to the construction market to climb. The unemployment rate for this sector has risen to 18.2% as of January 2009 from 11.0% a year earlier. Second, falling real estate values and the growth in foreclosures precipitated the troubles in the financial sector, which led to a freezing in the credit markets. The lack of credit placed a premium on firms having a strong balance sheet. Coupling this factor with a fierce recession induced many firms to cut costs through reduced headcount. The aggregate effect leaves the employment market where it is now.

Vishnu Lekraj does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.