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Stock Strategist

Our Picks for a Grim Employment Climate

The jobs picture isn't pretty, but some related stocks are bargains.

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Signs of a recession abound. Positive macroeconomic data points are rare these days, and the Federal Reserve's emergency 75-basis-point cut of the federal-funds rate, the largest reduction in more than 20 years, is solid evidence that the data is as bad as it seems. In contrast, employment has seemingly been one of the few resilient indicators thus far. However, if we dig a little deeper into the data and segment the more highly publicized labor figures into their components, a different, less favorable picture emerges. For a primer on the subject, one of our recent Stock Strategist articles on employment is a good place to start.

The goal of this article is not to make the case that recession is imminent, but rather to suggest that employment won't necessarily keep us out of one. First, I'll highlight a few data series released by the Bureau of Labor Statistics that show early signs of weakness in the labor markets. Second, I'll discuss reasons to be suspect of some labor data. And finally, I'll break down the impact that we think this environment will have on the employment-service companies in our coverage universe. This batch of stocks has been battered during the last year, and though the sell-off was well deserved for many, there are pockets of undervaluation that we'd like to bring to your attention.

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