Structural Demand Anchors Growth: Healthcare and Leisure Lead in a Slowing Economy

The U.S. economy faces headwinds: a contracting GDP in Q1 2025, cooling consumer spending, and sector-specific declines in manufacturing and retail. Yet the labor market remains a bright spot, with healthcare and leisure & hospitality sectors defying broader deceleration. These industries are not only adding jobs at robust rates but also experiencing wage growth that signals structural demand resilience. For investors, this presents a compelling case for long-term equity exposure through sector-focused ETFs like XRAY (Health Care Select Sector SPDR Fund) and IYK (iShares U.S. Consumer Services ETF).

Healthcare: A Steady Pillar of Job Creation

The healthcare sector added 62,000 jobs in May 2025, outpacing its 12-month average of 44,000. Hospitals and ambulatory care services alone contributed 59,000 of those jobs, reflecting enduring demand for medical services. Year-over-year, healthcare has maintained a consistent pace of ~57,000 jobs per month, a trend driven by an aging population, rising chronic disease management needs, and ongoing specialization in care delivery.

Wage trends underscore this structural demand. Average hourly earnings for healthcare workers rose to $36.24 in May, a 3.9% annual increase. Production and nonsupervisory employees saw a 0.4% monthly bump, aligning with broader sector-wide wage growth. These figures suggest employers are prioritizing retention and recruitment in a competitive labor market, even as macroeconomic uncertainty lingers.

Leisure & Hospitality: Resilience Beyond the Recovery

While leisure & hospitality added 48,000 jobs in May, down from its 2023 peak, this growth still outperforms the broader economy. Food services and drinking places accounted for 30,000 of these jobs, highlighting the sector's adaptability to evolving consumer preferences.

Wage data reveals a tight labor market:
- Average hourly earnings for leisure/hospitality workers rose to $21.92 in April, a 3.8% annual increase.
- Roles like executive chefs (+14.1% salary growth) and directors of franchise (+45.9%) saw outsized gains, signaling a shift toward skilled labor retention.

The sector's geographic diversity also buffers against regional economic shocks. States like California, Texas, and Florida—home to 50% of job openings—offer scalability, while lower-wage regions like Iowa and Oklahoma provide cost advantages for employers.

Why These Sectors Signal Long-Term Opportunity

1. Inelastic Demand: Healthcare's need for care and leisure's role in daily life make these sectors less cyclical. Even in slowdowns, consumers prioritize medical services and discretionary spending on experiences.
2. Labor Shortages Driving Quality: Wage growth in both sectors reflects companies investing in talent retention, which should boost productivity and profitability over time.
3. ETFs for Diversified Exposure:
4. XRAY (Health Care Sector ETF): Tracks 35 healthcare stocks, including hospitals, biotech, and pharmaceuticals. With a 0.12% expense ratio, it offers broad exposure to a sector with ~3.5% dividend yield.
5. IYK (Consumer Services ETF): Covers leisure, hospitality, and travel firms. Its 0.42% expense ratio balances cost and diversification.

Risks and Considerations

• Wage Pressure: Rising labor costs could compress margins unless companies pass costs to consumers or improve efficiency.
• Regional Disparities: Leisure/hospitality wages vary widely by state; investors should favor ETFs with exposure to high-growth markets.
• Policy Uncertainty: Immigration reforms and federal job cuts (down 59,000 since January) could disrupt labor markets.

Investment Strategy: Prioritize Structural Winners

• Dollar-Cost Average: Use XRAY and IYK to build positions gradually, smoothing volatility risks.
• Focus on Skill-Driven Subsectors: Healthcare ETFs with exposure to home health care and telemedicine, and leisure ETFs favoring hospitality tech and franchising, may outperform.
• Monitor Wage Data: Rising wages in these sectors are a positive signal for both employment growth and consumer spending.

The May 2025 BLS report reinforces a clear thesis: healthcare and leisure/hospitality are anchoring labor market strength amid broader economic softness. Their resilience stems from structural demand—a foundation for long-term equity outperformance. Investors ignoring these sectors risk missing a key pillar of the U.S. economic recovery.

Data as of June 2025. Past performance does not guarantee future results. Consult with a financial advisor before making investment decisions.