QSR: EMPLOYMENT UPDATE

A seventh consecutive month, albeit sequentially slower, of employment growth is supportive of quick service restaurant stocks.

The data, detailed in the chart below, show that the 20-24 year old age cohort saw month-over-month employment growth of +3.0% versus +3.6% in December.  Unemployment in this demographic, a key source of traffic for QSR companies, is extremely high on an absolute scale but growth in employment levels for this age group is encouraging.  Given that growth slowed on a sequential basis by 61 basis points, this data point is not as positive as January’s was.  The decline represents the largest sequential slowdown in employment growth among 20-24 year olds since October 2009.

QSR: EMPLOYMENT UPDATE - employment chart 34

MCD, SONC, JACK, BKC, YUM, and WEN have all mentioned unemployment among younger age cohorts as being a primary impediment to same-store sales growth over the past year or so. 

We will be watching closely to see how unemployment trends transpire over the next few months.  With significant commodity cost headwinds first and foremost in investors’ minds, a slowdown in unemployment growth among the key age cohorts would greatly exacerbate the impact. 

The chart below shows that for the first time since July, the Labor Force Participation Rate did not contribute to an understatement of the Unemployment Rate on a normalized basis.  I am using the trailing ten-year average Labor Force Participation Rate as the “normalized” rate to which I compare the monthly Labor Force Participation Rate.

QSR: EMPLOYMENT UPDATE - unemployment lfpr

Howard Penney

Managing Director