The Week Ahead

The Economic Data calendar for the week of the 9th of June through the 13th of June is full of critical releases and events.  Attached below is a snapshot of some of the headline numbers that we will be focused on.


The Week Ahead - 06.06.14 Macro Week Ahead

Poll of the Day Recap: 66% Think California Chrome Will Win the Triple Crown

Takeaway: 66% said YES; 34% said NO.

Hedgeye Gaming, Lodging & Leisure analyst Dave Benz waxed philosophically about markets and the distinct possibility that California Chrome may win the 146th Belmont Stakes and Triple Crown this weekend in today’s Morning Newsletter.

But we wanted to know what you thought, so today’s poll question was: Will California Chrome win the Triple Crown?

Poll of the Day Recap: 66% Think California Chrome Will Win the Triple Crown - cc2

At the time of this post, 66% said YES; 34% said NO.

People who voted YES said they think California Chrome will win the Triple Crown because:

  • “Skechers is endorsing California Chrome (no joke). So naturally, that means that the horse will win. We all know that SKX is a bastion of excellence that only knows how to win. Therefore, the laws of logic tells us that all who are affiliated with SKX -- both man and horse -- must therefore be winners too.”
  • “In my heart I hope. Such a great story. Great for Horse racing and sports and the nation. There will be 10 other's gunning for the win. California Chrome by 10 lengths.”
  • “California weather for a California horse... I have from a source that the field is just too weak to beat this horse.”
  • “If this horse can win it all then so can ‘we.’ Will signal extended bull-horse market.”
  • “There's not that much to beat. If he feels good, he'll win.”
  • “If he's healthy he wins easily.”

However, NO voters expressed these reasons for their choice:

  • “Big tree fall hard - Cali Chrome would have lost the Preakness given another furlong which you will get at the big track on Long Island. San Antonio Spurs in 6 and the LaLa Kings in 5 (sadly) while I am at it.”
  • “I don’t know anything about horse racing, but I know everyone seems to be counting on this to happen.  In my experience, a ‘sure thing’ often isn't.”
  • “Belmont is a very long track...”
  • “History is against it!”


10 VIX?

Takeaway: It’s never stayed lower than that. And never is a long time.

10 VIX? - VIX

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

Employment Data Mixed

A mediocre jobs report this morning indicated a 217,000 gain in employment in May, greater than the 215,000 that economists expected.  Unemployment and the labor force participation rate remained unchanged at 6.3% and 62.8%, respectively.


We received mixed results this morning from BLS pertaining to restaurant industry employment, but we do have a few notable callouts.  The 20-24 YOA cohort had its second best month of employment growth since June 2012, which is a bullish data point for quick-service and fast casual operators.  The 45-54 YOA cohort continued its employment slump, as May marked the 19th consecutive month of employment deterioration.  This continues to be, in our view, a material headwind to casual dining restaurants and, in part, leads us to believe the industry is in secular decline.  However, the 55-64 YOA cohort had its second best month of employment growth since August 2013 and is, all told, a bullish data point for the casual dining industry.


In aggregate, the report was fairly mixed for the restaurant industry with perhaps the most telling data point coming in the form of strong employment growth in the 20-24 YOA cohort.  We continue to favor select quick-service and fast casual operators, including YUM, CMG, WEN, JACK, PLKI and KKDBOBE, which is one of our top long ideas, is a special situation play in the casual dining space and we are a strong advocate for change within the company, particularly a separation of the foods and restaurant businesses.


May employment growth data:

  • 20-24 YOA +3.79% YoY; +148.7 bps sequentially
  • 25-34 YOA +1.34% YoY; -46.1 bps sequentially
  • 35-44 YOA +0.48% YoY; -38.3 bps sequentially
  • 45-54 YOA -0.24% YoY; -3.1 bps sequentially
  • 55-64 YOA +2.72% YoY; +73.3 bps sequentially


Employment Data Mixed - chart1


Employment growth across full-service restaurants, limited-service restaurants, and leisure & hospitality continues to grow at a fairly healthy clip despite a steady deceleration in two of the categories.  We’d note that employment in limited-service restaurants remains the most robust and caution that growth across all three segments remains well below June 2013 levels.


Employment Data Mixed - chart2


Employment Data Mixed - chart3


In the chart below, we look at the correlation between TTM Leisure & Hospitality Employment Growth and TTM Knapp Comps.  As we’ve pointed out before, Knapp same-store sales have historically tracked well with employment growth in the leisure & hospitality industry, however, this positive correlation began to break down in mid-2012.  This trend continues, supporting our case that the casual dining industry is in secular decline.  In this type of environment, we continue to believe that only the most nimble and innovative players will thrive.


Employment Data Mixed - chart4


Howard Penney

Managing Director


Fred Masotta



SUMMARY:  I’ve been dealing with and strategically parenting around my 18-month olds discovery of and increasing proclivity for the word “No” over the last month, so we’ll go with that as the theme for May Employment as it sufficiently characterizes this mornings release:    


No change in Unemployment rate, No change in the U6-U3 spread, No change in the Labor Force Participation Rate, No acceleration in the pace of job growth, No acceleration in earnings growth, No good news for housing, No #EscapeVelocity in the labor market…and probably no change in the present policy course out of the fed. 


No change in our intermediate-term outlook for growth either as we continue to think slow-growth exposure outperforms alongside rising inflation, a constrained consumer, and consensus expectations that require 4%+ GDP growth over the balance of 2014 to hit full year growth estimates.  Reported Growth will obviously accelerate sequentially in 2Q14 but the TREND, at least through 3Q14, is one of deceleration.  


A summary highlight of the numbers/data below:    


A NEW HIGH:  We eclipsed the January 2008 peak in Private employment last month and finally eclipsed the prior, Jan 2008, peak in total NFP employment by +98K with the net gain of +217K in May.   The private sector’s share of total employment has increased 40bps to 84.2% compared to 83.8% prior to the recession. 


State & Local Government Employment increased for a 9th consecutive month in May while the rate of job loss at the Federal level improved 60bps sequentially to -2.3% YoY.  Aggregate government salary and wage growth has finally begun to contribute positively to aggregate disposable income growth.  






Labor Force Participation:  The participation rate was static at 62.8% MoM in May.  The shift in participation by age since the start of the recession is not new, nor particularly surprising, but notably, the divergence from pre-recession levels has continued to increase moderately, not mean revert. 






#HousingSlowing:  Employment growth in the 25-34 year old buck decelerated for a third straight month in May.  With 1st-time home buyers representing ~30% of the market and a key first rung in housing’s ladder, weak wage growth and decelerating employment trends in this key age demographic do not augur strength for forward housing demand/HPI




Earnings Growth:  Average hourly earnings in the Private sector grew 2.1% YoY, up from +2.0% in April but a continuation of the stagnant 2.0% +/- 20bps that has prevailed over the last two years.  Average hourly earnings for Production and Nonsupervisory employees was better, growing +2.4% YoY with the slope on the trend line still positive.  (See our prior note for  Labor's Bad Bank for a more detailed discussion of labor dynamics). 


With earnings growth static and the spread between spending and earnings growth having re-expanded the last couple quarters, we continue to think the upside to consumption growth remains very much constrained in the immediate/intermediate term (see #Gravity: April Consumer Spending for further detail).


MORE MUDDLE:  MAY EMPLOYMENT - Spending vs Earnings 060614


 MORE MUDDLE:  MAY EMPLOYMENT - Nominal Earnings Prod   NonSupervisory



THE TICKING CLOCK:  At 60 months as of May, the current expansion has now surpassed the mean duration of expansions (59 months) over the last century.  We continue to think this reality weighs into the feds policy calculus  – they need to get out of QE if only to give themselves the opportunity to (credibly) get back in if need be.   


MORE MUDDLE:  MAY EMPLOYMENT - Eco cycle Profile 060614


Unemployment Rate The unemployment rate held at 6.3% in May while the U-6 rate (Unemployed + Marginally Attached + Part-time for Economic Reasons) dropped -10bps to 12.2%.   Policy makers look at the spread between the two as a broad measure of labor market slack. 


While the percent of LT unemployed and U-6 rate continue their steady, albeit painfully slow, march lower, the U6-U3 spread remained at 5.9% in May - well above longer-term averages which sit closer to ~3.5%


MORE MUDDLE:  MAY EMPLOYMENT - Unemployment rate




MORE MUDDLE:  MAY EMPLOYMENT - Employment Table 060614



80o and Sunny on tap for the Northeast.  Enjoy the weekend.


Christian B. Drake





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