The U.S. service sector, which had slowed in December, made a solid rebound in January, as new orders recovered and material costs paid by businesses declined. Inflation has been easing over the past few months, indicating that the economy may have a softer landing in 2023 as fears of a possible recession still loom large.
The rebound in the services sector activity is also an indication that people are now more confident about the economy and are willing to spend more. Given this situation, business services stocks like Bowman Consulting Group Ltd. BWMN, OneSpaWorld Holdings Limited OSW, Verisk Analytics, Inc. VRSK and MSCI Inc. MSCI are likely to benefit in the near term.
Services Sector Activity Grows
The Institute for Supply Management reported on Feb 3 that its services sector Purchasing Managers’ Index (PMI) rose to 55.2 in January, after declining to 49.2 in December. This was also above analysts’ expectations of a rise to 50.4%. A reading of anything above 50 suggests an increase in service activities.
December’s contraction was the first in 30 months or since May 2020. The services sector has now grown for 31 months out of the past 32 months.
Given that manufacturing output has been declining and consumer spending has been becoming more constrained as a result of rising commodity prices, a rise in services activity raises hopes that the economy has not yet succumbed to inflationary pressures.
In fact, the jump in services sector activity comes as data showed inflation has been easing over the past three months.
January’s solid rebound was led by a jump in new orders. The New Orders Index rose to 60.4% in January from 49.2% in December. Also, the Business Activity Index increased to 60.4% in January, increasing 6.9% compared to the seasonally adjusted reading of 53.5% in December.
The Supplier Deliveries Index remained unchanged at 50%, while the Prices Index came up with a reading of 67.8% in January, down 0.3% from December.
Although inflation is still at multi-year highs, it has been slowing lately. The Personal Consumption Expenditures (PCE) Price Index fell to 5% in December from 5.5% in November year over year, according to data released by the US Bureau of Economic Analysis on January 27.
The preferred inflation index of the Fed, Core PCE, decreased from 4.7% in November to 4.4% in December. The last quarter of 2022 saw a significant slowdown in inflation, which gave millions of people confidence that the economy may see a softer landing in 2023 and receded fears of a recession.
Additionally, the U.S. GDP grew 2.9% in the fourth quarter for the second consecutive quarter after declining in the previous two quarters.
Consumer sentiment has also increased as a result of GDP growth and easing inflation. According to the University of Michigan’s survey, consumer sentiment increased to 64.9 in January after rising to 59.7 in December. The figure for January is the highest since April 2022, proving once again that people are increasingly optimistic about an economic recovery.
Given this situation, it makes for an ideal opportunity to invest in these four stocks.
Bowman Consulting Group Ltd. provides planning, engineering, construction management, commissioning, environmental consulting, geomatics, survey, land procurement and other technical services to customers operating in a diverse set of regulated end markets. BWMN is headquartered in Reston, VA.
Bowman Consulting Group’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 42.9% over the past 90 days. BWMN presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
OneSpaWorld Holdings Limited is a provider and innovator in the fields of wellness, beauty, rejuvenation and transformation on cruise ships and on land. OSW’s service includes traditional and alternative massage, body and skincare treatment options, ayurvedic treatments, comprehensive hair and nail services, fitness, acupuncture, herbal medicine, pain management and medi-spa.
OneSpaWorld Holdings Limited’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 38.9% over the past 60 days. OSW presently sports a Zacks Rank #1.
Verisk Analytics, Inc. is one of the leading data analytics providers serving customers in insurance, energy and specialized markets, and financial services. Using advanced technologies to collect and analyze data, VRSK draws on unique data assets and deep domain expertise to provide innovations that are integrated into customer workflows.
Verisk Analytics’ expected earnings growth rate for the current year is 4%. The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the past 60 days. VRSK currently carries a Zacks Rank #2 (Buy).
MSCI Inc. provides investment decision support tools. MSCI’s services include portfolio construction and risk management products and services; Environmental, Social and Governance research and ratings; and real estate research, reporting and benchmarking offerings.
MSCI Inc.’s expected earnings growth rate for the current year is 11.8%. The Zacks Consensus Estimate for current-year earnings has improved 1.9% over the past 60 days. MSCI currently carries a Zacks Rank #2.
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