Days after college graduation, a newly-minted Finance/Investment Management degree in hand, I found myself combing through the newspaper want-ads looking for work.
Yes, I said newspaper. This was the dawn of the internet era, long before job seekers began uploading their resumes to sites like Indeed.com and visiting professional networking portals such as LinkedIn.
Fortunately, everything worked out.
Needless to say, it's a different world for today's job seekers. The average job hunt is filled with digital pathways to make connections. If you're an electrician looking for a job in the Chicago area, for example, a quick search of CareerBuilder.com shows 64 available positions.
But the more things change, the more they stay the same. A successful job search still depends in large part (aside from the applicant's qualifications) on the number of businesses hanging out help-wanted signs. The more the better. And they are plentiful right now, to say the least.
Most Traders Do THIS Wrong
The Business Of Jobs
There are currently 7.1 million job openings in the United States. For perspective, about 6 million people are actively looking for work. In other words, there are more available positions than candidates waiting to fill them, which has been the case for 18 straight months.
That's quite a contrast from the end of the 2009 recession when the ratio was flipped and there were six job hunters for every one job opening. Tough odds...
This hiring boom kicked into gear last year. The nation's workforce expanded by 2.7 million in 2018, up from 2.2 million the prior year. That works out to an average of 223,000 new jobs per month. That pace has slowed a tick over the past couple of quarters, with payroll growth averaging about 157,000 per month since July.
Still, that's an impressive level considering we've reached full employment, which economists define as the maximum level (or minimum unemployment) that won't trigger inflation. Some say the threshold is 4%; others argue 4.5%. In any case, we're beneath it. The unemployment rate has just sunk to 3.5% – the lowest level in 50 years.
According to the Bureau of Labor Statistics, we haven't seen payrolls this full since December 1969.
Source: St. Louis Fed
A decade ago, there were 138 million Americans gainfully employed. That number has since gradually recovered to 157.9 million -- a new record high. Over the past month alone, the construction industry added 7,000 new jobs, transportation created 16,000, and healthcare companies welcomed 39,000.
The benefits of a tighter labor market will ripple far and wide. One such beneficiary is Paychex (Nasdaq: PAYX), which handles payroll administration and other HR services. This long-time member of my Daily Paycheck portfolio has gained 33% so far this year, easily outpacing the market.
Here's a look at how it's done since adding it to our portfolio in 2012...
Not bad for a "boring" stock paying a 3% yield. In hindsight, you could have seen this trade from a mile away.
While we got in early with Paychex, I think this hiring boom still has some legs. And I have an idea for how to play it...
More Hiring Is Great News For Staffing Firms
It might seem that if this labor boom continues, unemployment will eventually fall to zero. Doubtful. It's never happened before. The closest was around 1.5% during World War II. The economy needs to create about 100,000 new jobs each month just to absorb new entrants into the labor pool from population growth.
From the perspective of business owners, the search for talent is never-ending. Growing companies need more hands on deck. Plus, there's always simple attrition. Joe from accounting is relocating to Florida. Jennifer from marketing is punching the clock for the last time and retiring.
Replacements must be found.
Time is money. So when it comes to perusing a pile of resumes, you can understand why many businesses prefer to delegate the legwork to a trusted partner. The top staffing agencies not only have an entire database of candidates, but also a complete arsenal of tools to match them to the right assignment. Some even use sophisticated artificial intelligence technology.
Meanwhile, job seekers choose to align with these placement companies because they can open doors.
Whether it's temporary, entry-level accounting work during tax season or a permanent position as Chief Financial Officer, staffing agencies can make the recruitment process as painless as possible. Temp-to-hire arrangements are becoming increasingly popular with many employers due to their flexibility.
Typically, the hiring organization will pay the staffing agency on a per-hour basis. The agency will then remit most of that to the employee, keeping a portion for itself. It might receive $18 per hour, pay the worker $17, and pocket the remaining $1. Multiply this "bill-to-pay" spread by a swiftly growing workforce, and you can see why revenues have been surging. The global staffing industry generates a staggering $450 billion in annual revenue.
Action To Take
These professional placement firms are seeing red-hot demand for their unique services. And any one of them could pan out quite nicely for investors.
My favorite in this space, however, is capturing more than its share. And with no inventory to purchase or costly equipment or factories to maintain, capital expenditures tend to be light. So it has the luxury of enriching stockholders with a generous stream of dividends and stock buybacks. How generous? Well, distributions have been rising at a 12% clip and have increased for 15 years in a row.