Wednesday, December 10, 2008

Restaurant Jobs No Longer Safe Haven

From the WSJ:

Restaurant jobs, a reliable fallback for many unemployed and immigrant U.S. workers, are shrinking almost as fast as tips left on tables.

The restaurant industry, one of the largest U.S. employers, is experiencing its longest period of job losses on record. Data released Friday by the Bureau of Labor Statistics show that food-service and drinking establishments shed jobs for five consecutive months through November. That's the biggest stretch since 1990, when the government began tracking such numbers.

Major chains like Starbucks Corp. and Brinker International Inc., parent of Chili's, are shutting many locations as customers cut back on everything from lattes to Saturday night dinners out. Weak consumer spending and high ingredient prices have pushed many independent restaurants out of business.

Remember that one of the biggest drops we have seen at the macro level over the last few months are personal consumption expenditures. This trend started in 2007 so it's been going on for some time:

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And real (inflation-adjusted) retail and food service sales have fallen off a cliff.

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During the last recession these sales went sideways. From an employment perspective this kept the sector viable as a place to work. However in this recession consumers have cut back sharply. In the chart above note that real sales have dropped.

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As a result, the year over year percentage change in real sales is now in negative numbers.

Let's compare the the job situation from the last recession to this one. We'll use the "leisure and hospitality" job figures from the BLS. This isn't an exact match, but it's close enough to give us an idea.

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In the last recession, the total number of jobs in this area of the economy peaked in July 2001 with 12,110,000 jobs. The trough came in June 2002 with 11,905,000 jobs for total job losses of 205,000.

This time around the economy had 13,635,000 leisure and hospitality jobs in December of last year and 13,486,000 in November 2008 for total losses of 149,000 so far.

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We've also seen a decrease in the number of hours worked during the latest recession.

how is this news impacting the restaurant stocks?

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As the chart from shows, the industry is holding up relatively well. While it has broken support from the multi-year rally, the sector rallied back to the upward sloping trend line where it ran into resistance. However, the employment numbers indicate this is a laggini sector, so there is probably still some downward pressure left.