Inside the August 2014 Jobs Report
Digging deeper, it appears that the slowdown in hiring was largely attributed to a decline in jobs in the retail and auto sectors, which shed 8,000 and 5,000 jobs respectively. Sectors that saw an increase in payrolls were health care, construction, and restaurants.
The unemployment rate ticked lower from 6.2% previously to 6.1%. While this would otherwise be seen as a positive if coupled with a strong payrolls gain, it’s evident that this metric inched lower because the labor force participation rate itself dropped; in other words, the unemployment rate decreased because more Americans dropped out of the labor force.
Lastly, average hourly wages increased by 0.2%, bringing their one-year growth rate up to 2.1%.
Mutual Funds on Watch: Small Cap Blend
|Ticker||Name||AUM (in Billions)||1-Year Return|
|STSCX||Stratton Small Cap Value Fund||$1.35||13.15%|
|GTCSX||Glenmede Small Cap Equity Portfolio||$1.47||12.36%|
|SKSEX||AMG Managers Skyline Special Equities Fund||$1.31||11.24%|
|DFTSX||DFA Tax Managed U.S. Small Cap Portfolio||$1.98||9.46%|
|FSCRX||Fidelity Small Cap Discovery Fund||$6.18||8.77%|
In the current environment, this asset class is regarded as a better gauge for hiring activity on the home front since smaller companies are more hesitant to expand operations and reinvest profits; large cap companies on the other hand are mature and more concerned about profit margins than growth, which why they are still considered to be in “doing more with less” mode.
As such, given the strong link between the health of the domestic economy and smaller size companies, we’re watching this asset class and related funds to get a better sense of the pace of the labor market recovery.
The Bottom Line
On the other hand, this asset class stands to offer more lucrative growth potential since these companies have yet to saturate their respective markets. Small caps should make up a portion of your overall portfolio, depending on your risk tolerance, given their ability to improve risk-adjusted returns over a long-term investment horizon.