September’s jobs report was disappointing, as employers added 148,000 jobs in the month, well below the 180,000 that economists expected. Following suit, the narrower data sets released were, on balance, negative for the restaurant industry. Employment growth across all cohorts decelerated on a sequential basis, suggesting that sales at QSR, fast casual, and casual dining companies could remain weak in the early stages of 4Q.
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 skewed negatively across the board in September as the 20-24 YOA cohort saw growth decelerate to +128 bps from +338 bps in August, the 25-34 YOA cohort saw growth decelerate to +152 bps from +185 bps in August, the 35-44 YOA cohort saw growth decelerate to +37 bps from +59 bps in August, the 45-54 YOA cohort saw growth slowing accelerate to -124 bps from -113 bps in August, and the 55-64 YOA cohort saw growth decelerate to 172 bps from 257 bps in August.
Employment by age 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. The sequential acceleration in growth slowing in the 45-54 YOA cohort and the deceleration in the 55-64 YOA cohort reflect negatively upon casual dining companies, indicating that we could continue to see weakness persist within the sector.
Within the QSR segment, we continue to find that the majority of management teams we track consistently highlight the importance of employment growth to the success of their business. The sequential deceleration in the 20-24, 25-34, and 35-44 YOA cohorts, suggest that demand for quick-service and fast casual restaurants could wane.
Restaurant Industry Employment (Confidence)
The Leisure & Hospitality employment data, which leads the narrower food service by one month, suggests that employment growth in the food service industry decelerated sequentially in September. Furthermore, the Leisure & Hospitality data also registered a month-over-month decline of -13k (second chart below), a stark contrast from August’s +21k month-over-month gain.
The more narrow restaurant-focused data sets paint a less clear picture. Limited-service employment growth decelerated sequentially in August, while full-service employment growth accelerated sequentially in August.
Leisure & Hospitality: YoY employment growth at +2.60% in September, down -32 bps versus August
Limited-Service: YoY employment growth at +4.86% in August, down -6 bps versus July
Full-Service: YoY employment growth at +2.85% in August, up +4 bps versus July