Goldman Sachs has identified a group of companies with high labor costs that could benefit from a cooling US job market, Market Watch reports.
As consumer confidence fell sharply and reports confirmed a slowdown in job growth, investors have seen a potential silver lining: easing wage pressures, which could boost profit margins for labor-intensive businesses.
In a recent report, Goldman Sachs compiled a “high labor cost” basket of stocks, focusing on companies where labor expenses made up a significant portion of revenue. These firms had a median labor cost of 33% of last year’s revenue, compared to 14% for the broader S&P 500 index.
Among the companies in this basket are several from the hospitality and restaurant industries, such as Hilton Worldwide, Marriott International, and Darden Restaurants (owner of Olive Garden). These sectors are traditionally labor-heavy, but the report also highlighted some unexpected names from the tech sector, including Meta Platforms (Facebook’s parent company). Goldman’s sector-neutral approach points out that Meta’s labor costs are higher than its tech peers, with companies like Netflix and Apple having notably lower labor costs relative to their revenue.
Goldman strategists, led by David Kostin, argue that stocks with higher labor costs are likely to outperform those with lower labor costs as wage growth decelerates. The firm’s economic team projects wage growth to slow to 3% and remain stable through 2026, with downside risks to the labor market.
While the US labor market is showing signs of cooling, the broader stock market has remained resilient. The S&P 500 and Dow Jones Industrial Average have reached new record highs, buoyed by investor optimism. However, futures on U.S. stock indexes eased slightly from these highs, and Treasury yields remained steady, indicating some caution among investors.
Goldman Sachs’ analysis suggests that as wage pressures ease, companies with higher labor costs could see improved profit margins, positioning them to benefit from a slowing labor market.
