Key restaurant indicators for December (Part 6 of 15)
A case of unemployment
In the last few parts, we saw that food and drinking places are part of the consumer discretionary sector such as the ETF Consumer Discretionary Select Sector SPDR (XLY). Increasing sales lead to businesses expanding and hiring more staff. During an economic downturn, businesses find it difficult to maintain a high level of staff, which leads to many people losing jobs and the unemployment rate rising.
Interpretation
The unemployment rate in November was 5.8%, which remained unchanged month-over-month. As the economy gets better, unemployment rates start to decline and business conditions start to improve. A falling unemployment rate is not enough reason to cheer, however. When we look at the labor force participation rate in the above chart, we see it, too, has been falling. The labor force participation rate in November 2014 was 62.8%, which remained unchanged month-over-month. The labor force participation rate, according to the U.S. Bureau of Labor Statistics, is the “share of the population 16 years and older working or seeking work.”
According to a policy analyst at Labor Economics, demographic changes such as Baby Boomers retiring explains one-third of the drop in labor participation. T he remaining drop is due to people staying out of the labor force while they get an education and people collecting Social Security Disability Insurance (or SSID).
Takeaway for the restaurant industry
Offering to a wide demographic is important for restaurant chains such as McDonald’s (MCD), Yum! Brands (YUM), Burger King (BKW), Brinker International (EAT), and others in the ETF Consumer Discretionary Select Sector SPDR (XLY). Pricing the menu correctly is important to appeal to the out-of-labor-force population. This could explain why casual dining restaurants with a higher average check, compared to fast food and fast casual restaurants, are performing poorly.
To learn more about these concepts, read an overview of the US restaurant industry.
So this leads us to look next into what’s happening with the population’s income and hourly wages.
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