Unemployment plunged from 9 to 8.6% in November. That's the first time the jobless rate has been under 9% since March. If companies are indeed hiring, interviewers are going to need some new suits. Should investors capitalize by purchasing shares of popular suit makers? (For related reading, see How Unemployment Affects You.)

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Labor Trend Going In Right Direction
Payroll jobs jumped 120,000 on top of a 100,000 gain in October and 210,000 during September. Granted, a big part of the headline improvement is due to reduced participation in the labor market (workers returning to school, discouraged workers not being counted, etc.). There's still reason to believe that employers are hiring. Real unemployment, an unofficial measure of joblessness that includes discouraged workers, improved from 16.2 to 15.6%. These employment gains do reflect relatively tame economic growth, however, the trend is going in the right direction.

A steady decline in weekly jobless claims supports the trend. Initial claims fell 4,000 to 364,000 in the week ending December 10. Continuing claims declined 79,000 to 3.546 million. Again, some of the improvement is due to drop off. Nevertheless, fewer jobless claims bode well for the labor market. (To learn more, read Economic Indicators: Jobless Claims Report.)

Clothes Help Make the Candidate
If hiring is on the uptick, business apparel should see an increase in traffic. In terms of tailored and business casual attire, mid-tier suit sellers Jos. A. Bank Clothiers (Nasdaq:JOSB) and The Men's Wearhouse (NYSE:MW) are well positioned to capture market share, rather than big retailers like Macy's (NYSE:M).

Jos. A. Bank is a popular destination for suit shoppers looking for a deal. Third quarter net income rose 19% to about $15 million on a 21% increase in sales. But, investors have been hard on Jos. A. Bank shares over the past couple of months. Even though their sales are a big draw with customers, they can be a double-edged sword. Margins fell by 140 basis points due to discounting that did not help mask higher input costs. One area where there may be some margin relief is online sales where Jos. A. Bank is seeing tremendous growth.

Where Jos. A. Bank realized higher sales on aggressive promotions, third quarter results for Men's Wearhouse were driven by increases in average unit selling prices. Net sales increased 6.3% during the quarter ended October 29. Higher price points helped increase gross margins 14.1% to $268.2 million, despite fewer transactions per store. Men's Wearhouse has a big tuxedo segment as well, which serves as a very strong entry point for attracting retail customers.

It will be worth watching to see if Men's Wearhouse, along with specialty retailers like Express, Inc. (NYSE:EXPR) and Banana Republic of The Gap Inc. (NYSE:GPS) that also sell suits, try to raise price points beyond the discounting holiday season. In the current environment, there could be resistance against attempts to move prices higher. It may be necessary if raw material costs remain elevated. Cotton peaked in the third quarter, and wool has stabilized at very high prices. Men's Wearhouse has increased its private label mix to absorb some of the raw material price increases. Additionally, their stocks of raw materials and inventory are high to weather any near-term price shocks. (To learn about how companies hedge against the rising costs of raw materials, read Commodities: The Portfolio Hedge.)

The Bottom Line
Both Men's Wearhouse and Jos. A. Bank are in a great position to capitalize on cost-conscious would-be job seekers. Another positive catalyst is the potential to capture market share from Syms Corporation, which filed for bankruptcy in November.

The upside augments as employers look to add headcount, yet there are risks. On top of inflationary headwinds, the better employment situation isn't assured yet, and wage growth has been very poor. The reality may be that improvements in the employment picture might be artificial, and workers aren't seeing income growth that would materially impact overall consumer spending. Look to the December unemployment report, due out on January 6, for confirmation of last month's mostly positive employment trend.

If the tide has turned in the right direction, suit stocks might be in for a windfall. Since the beginning of the recovery, Jos. A. Bank and Men's Wearhouse have traded similarly. Over the past three months, there's been divergence with Jos. A. Bank underperforming Men's Wearhouse. Effective cost control, margin expansion and growth prospects in the Big and Tall division have given Men's Wearhouse the momentum since the beginning of December. A sustained recovery in employment would have Men's Wearhouse looking very sharp. (For more information on investing in the retail sector, read The 4 R's Of Investing In Retail.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Matt Cavallaro did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Investing

    Build a Retirement Portfolio for a Different World

    When it comes to retirement rules of thumb, the financial industry is experiencing new guidelines and the new rules for navigating retirement.
  2. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  3. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  4. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  5. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  7. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  8. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  9. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  10. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Fast Fashion

    Definition of "fast fashion."
  3. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  4. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  5. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  6. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!