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The indication of strong employment growth in April, in the quick service and casual dining industries, was positive news for the restaurant industry. However, mixed employment by age demographics warrant attention going forward as the United States saw sequential deceleration in the 20-24 YOA cohort's employment growth.

Generally, Friday’s jobs data were positive for the U.S. economy as the important macro metrics (Labor, Housing, Confidence, Credit) remain attractive on an absolute and relative, versus the rest of the world, basis. We like SBUX and EAT as ways to play this theme.

Below, we discuss employment by age and restaurant industry employment. These serve as proxies for demand and operator confidence, respectively, in our models.

 

Employment by Age (demand)

Employment growth by age was mixed in May as the 20-24 YOA cohort saw growth decelerate to +4 bps from +170 bps in April, the 25-34 YOA cohort saw growth accelerate to +200 bps from +140 bps in April, the 35-44 YOA cohort saw growth accelerate to +50 bps from +30 bps in April, the 45-54 YOA cohort saw growth decelerate to -80 bps from -70 bps in April, and the 55-64 YOA cohort saw growth decelerate to +280 bps from +320 bps in April.

This is an important metric for the restaurant industry. Given the discretionary nature of casual dining expenditure, and the highly-competitive nature of the industry, we infer that sustained employment growth in core demographics is necessary for continued comp growth in the absence of new unit growth or income per capita growth. Within QSR, also, the majority of management teams that we track have highlighted employment growth as being crucial to the ongoing success of their businesses. The sequential deceleration in 20-24 YOA employment could, if it continues into May and June, be a cause for concern for some QSR shareholders.

EMPLOYMENT DATA MIXED FOR RESTAURANTS - employment by age 610

Restaurant Industry Employment (confidence)

The Leisure & Hospitality employment data, which leads the narrower food service data by one month, suggest that employment growth in the food service industry ticked up in May. The more narrow restaurant-focused data sets also suggest an increase in operator confidence in April versus March (narrow data released on a lag). On a sequential basis, Leisure & Hospitality employment data registered a month-over-month gain of 43k (second chart below), an acceleration from the prior month’s 38k month-over-month gain.

We would caution that Knapp Track comps and traffic have implied two successive quarters of two-year average trend decelerations in the casual dining industry, for April and May, and that industry hiring has generally been reactive, not proactive, in the past.

Sequential Moves:

Leisure & Hospitality: Employment growth at +3% in May, up 28 bps versus April

Limited Service: Employment growth at +4.4% in April, up 20 bps versus March

Full Service: Employment growth at +1.7% in April, up 8 bps versus March

EMPLOYMENT DATA MIXED FOR RESTAURANTS - restaurant employment

EMPLOYMENT DATA MIXED FOR RESTAURANTS - knapp comps vs L H

EMPLOYMENT DATA MIXED FOR RESTAURANTS - leisure   hospitality

Howard Penney

Managing Director

Rory Green

Senior Analyst