January’s jobs report was disappointing as employers only managed to add 113,000 jobs in the month despite expectations of 185,000. Following suit, the narrower data sets released were largely bearish for the restaurant industry. Employment growth across the youngest two cohorts slowed on a sequential basis, suggesting that sales at QSR chains could remain light in the coming months. Furthermore, employment growth in the Full-Service, Limited-Service, and Leisure & Hospitality categories continues to decelerate from its mid-2013 highs.
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 came in mixed in January as the 20-24 YOA cohort saw growth decelerate to +242 bps from +277 bps in December, the 25-34 YOA cohort saw growth decelerate to +19 bps from +149 bps in December, the 35-44 YOA cohort saw growth accelerate to +184 bps from +73 bps in December, the 45-54 YOA cohort saw growth slowing decelerate to -52 bps from -87 bps in December, and the 55-64 YOA cohort saw growth accelerate to +76 bps from +52 bps in December.
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 improvement in the 35-44, 45-54, and 55-64 YOA cohorts is, on the margin, bullish for the casual dining industry.
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 – particularly growth in the younger cohorts. The sequential deceleration in the 20-24 and 25-34 YOA cohorts suggests that demand for quick-service and fast casual restaurants could be waning.
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 -17 bps sequentially in January. That being said, this category registered a month-over-month increase of +24K jobs (second chart below).
The narrower restaurant-focused data sets are also bearish for the restaurant industry. Both Full-Service and Limited-Service employment growth decelerated sequentially in December. Growth across all three categories has been decelerating since mid-2013.
Leisure & Hospitality: Y/Y employment growth at +3.09% in January, down -17 bps versus October
Full-Service: Y/Y employment growth at +3.17% in December, down -47 bps versus November
Limited-Service: Y/Y employment growth at +4.05% in December, down -37 bps versus September