The headline U.S. jobs number surpassed expectations in September, as nonfarm payrolls advanced 248,000 (vs 215,000 estimate) and the unemployment rate dropped 20 bps to 5.9%. This is the first time in over six years since we've seen the unemployment rate below 6%. Although the labor force participation rate ticked down 10 bps to 62.7% and wage growth remains anemic, it is indisputable that more jobs in America is a positive for restaurants. We've seen this reflected in both July and August restaurant sales numbers, which have shown sequential upticks, and are eagerly awaiting September's release.
This is the second straight month employment growth has increased year-over-year across our five primary age cohorts. While we saw strength across the board, we do have several notable callouts:
- 20-24 YOA: weakest month of growth we've seen in the last 15
- 25-34 YOA: second strongest month of growth we've seen in the last 19
- 45-54 YOA: three straight months of growth after 20 straight months of declines
- 55-64 YOA: strongest month of growth we've seen in the last 21 months
While widespread employment growth is positive for all restaurants, September's employment release is particularly positive for casual diners as both the 45-54 and 55-64 YOA cohorts are showing their strongest levels of growth in the last two years. With that being said, we continue to favor BLMN and BOBE on the long side as a play on potential value enhancing initiatives and are turning cautious on our shorts (DFRG, EAT) heading into earnings season.
The release was also a positive for quick-service and fast casual restaurants, as weak growth in the 20-24 YOA cohort is more than offset by another very strong month of growth in the 25-34 YOA cohort. We continue to favor operators with strong margin drivers in place (CMG, JACK, WEN) and those with strong unit level economics and well-calculated expansion plans (KKD, PLKI).
September Employment Growth Data:
- 20-24 YOA +0.96% YoY; -143.1 bps sequentially
- 25-34 YOA +2.46% YoY; -14.4 bps sequentially
- 35-44 YOA +0.88% YoY; +34.2 bps sequentially
- 45-54 YOA +0.23% YoY; -40.6 bps sequentially
- 55-64 YOA +3.59% YoY; +97.9 bps sequentially
Employment growth at full-service restaurants, limited-service restaurants and leisure & hospitality continues to grow, despite seeing a steady deceleration since the highs of mid-2013 likely due to cost pressures these companies are facing on both the food and wage front.
Howard Penney
Managing Director
Fred Masotta
Analyst
