Parsing the Payroll Report: Focus on Transport Stocks

Employers in the U.S. created 217,000 jobs in May, lifting total U.S. payrolls to the highest level since January 2008. Adjusting for seasonal factors and population growth, the unemployment rate held steady at 6.3 percent, the lowest since September 2008.

Economists and strategists are generally positive in their response:

  • Adrian Miller of GMP Securities LLC: Confirms Goldilocks fundamental landscape of not too hot, not too cold. Good for stocks, bonds and credit spreads.
  • Don Rissmiller of Strategas Research Partners LP: New high on payrolls show the U.S. economy retains momentum.
  • Eric Viloria of Wells Fargo Securities LLC: The data supports an ongoing gradual reduction in the pace of monthly Fed purchases which is contributing to overall benign market conditions.

Seven sectors have accounted for 97 percent of all jobs created during the past six months. Transports have led the way, generating nearly a quarter of the 1,152,000 new jobs.

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We sorted the 37 transportation companies within the S&P 1500 Index based upon new hiring during the past year. While not all companies report headcount, we identified eight whose payrolls have risen at least 5 percent. We further screened for earnings growth of 5 percent, and all but one made the cut.

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We recognize some will question cause and effect (hiring growth and earnings growth don't necessarily correlate directly), but we note this group of companies is up more than double the S&P 500 Index's rise so far this year. Causation or not, we like the return. Allegiant Travel Co. (ALGT), FedEx Corp. (FDX), Heartland Express Inc. (HTLD), J.B. Hunt Transport Services, Inc. (JBHT), Old Dominion Freight Line Inc. (ODFL), The Williams Companies, Inc. (WMB).

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