Although the headline U.S. jobs number disappointed (nonfarm employment advanced 142,000 vs expectations of 225,000) in August, the unemployment rate ticked down to 6.1%. All told, the read-through to the restaurant industry is rather encouraging, as employment growth increased year-over-year across our five primary age cohorts.
While we saw strength across the board, the most notable callout is the strength we saw in the 25-34 and 45-54 cohorts, which both posted their strongest month of employment growth in over three years. August marked the second straight quarter of employment growth in the 45-54 cohort which, prior to that, had seen 20 straight months of employment deterioration. This bodes particularly well for casual dining restaurants, which could begin to see a boost from this reversal.
In aggregate, widespread employment growth is bullish for both quick-service and casual dining restaurants. With that being said, however, we continue to favor select quick-service and fast-casual operators including JACK, CMG, WEN, KKD and PLKI.
August employment growth data:
- 20-24 YOA +2.40% YoY; +6 bps sequentially
- 25-34 YOA +2.61% YoY; +36 bps sequentially
- 35-44 YOA +0.54% YoY; +12 bps sequentially
- 45-54 YOA +0.63% YoY; +48 bps sequentially
- 55-64 YOA +2.61% YoY; -13 bps sequentially
Employment growth at full-service restaurants, limited-service restaurants and leisure & hospitality continues to grow, despite seeing steady deceleration since high of mid-2013 likely due to significant cost pressures these companies are facing on both the food and wage front.
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 broke down in mid-2012. Despite improving same-store sales numbers, this trend continues to support our case that the casual dining industry is in secular decline. In this type of environment, we believe that only the most nimble, innovative and operationally focused players will thrive.
Howard Penney
Managing Director
Fred Masotta
Analyst