- Published on Tuesday, 11 June 2013
- Written by Jerry Stiegler
Employment numbers get a lot of attention in the weekly news cycle because they represent a leading indicator for the country's economic performance. But what do these numbers mean to foodservice? This week we take a look at the bigger jobs picture and the foodservice industry's response.
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The first employment number out this week was ADP's estimate of new jobs. The payroll processing company put the number of new jobs in May at 135,000, which was below expectations. The company said 58,000 of the new jobs came from employers with less than 50 employees. ADP revised their estimate of new jobs in April down slightly 113,000 from 119,000.
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Next, the U.S. Bureau of Labor Statistics (BLS) reported that first-time jobless claims were at 346,000, a decline of 11,000, for the week ending May 31. The less volatile 4-week average of claims hit 352,500, an increase of 4,000. This stat is a hard number based on actual claims filed and reported by the states rather than an estimate based on a survey. While some observers see a positive trend, the claims numbers have been remarkably consistent this year and are higher than they were before the recession. Probably the best thing that can be said is that layoffs do not appear to be on the rise.
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And that brings us to what the Wall Street Journal calls "Jobs Friday" when the BLS reports. The BLS estimated that the economy created 178,000 private sector jobs in May while government organizations lost 3,000 jobs for a net gain of 175,000. The unemployment rate stayed relatively flat increasing to 7.6 percent from 7.5 percent in April.
Again, some optimistic observers look at this and other data and contend that the employment picture is improving, albeit slowly. Others see a darker picture. For example, the BLS report states that the number of unemployed persons remained at 11.8 million in May. The report also projects that there were 780,000 discouraged workers, meaning those who would like to work but don't think they can find a job, which is the same as a year ago.
Looking at the proportion of the population that is working, we find that in 2006, 63.4 percent of the working age population was employed. In July 2011, that number was 58.2 percent and today it is 58.6 percent. Research from the Gallup Organization finds a similar pattern, although their study focuses on the percentage of the population with full-time jobs. A recent Wall Street op-ed points out there are "disincentives" to working including disability benefits (up 13 percent since 2009, and food stamps, up 39 percent since 2009) and extended unemployment insurance benefits.
So this means foodservice operators now find it relatively easy to fill openings, even the low-paying, part-time positions. Along those lines, in May foodservice operators added 38,100 jobs on a seasonally adjusted basis, according to the BLS. This represents better than one-fifth of the new private sector jobs created in the month.
Economic News This Week:
- The Institute for Supply Management's Manufacturing Index dropped into negative territory in May to 49 which was down from 50.7 in April. (A score of less than 50 indicates market contraction.) Production, new orders and employment all fell. The decline is not a steep one and the Index has been in contraction three times since the recovery began but a number of measurements have shown poor performance in the manufacturing segment.
- The Institute for Supply Management's Non-manufacturing (Service) Index crept up in May to 52.7 from 52.5 in April. New orders were up but the employment component of the Index fell to 50.1 from 52 in April.
- Factory orders were up 1 percent in April, according to the U.S. Department of Commerce. This slight increase followed a drop of 4.9 percent in March.
- Productivity for the first quarter of the year was revised downward by the U.S. Department of Labor to being up 0.5 percent from being up 0.7 percent. Worker compensation plunged by 3.8 percent but some economists attribute the drop to businesses moving bonuses and dividends into the last quarter of 2012 to avoid increased taxes. Unit labor costs increased just 1.1 percent in the past 12 months as businesses have controlled cost in part by keeping down wages.
- Consumer credit rose by $11.1 billion in April with the Federal Reserve attributing most of the increase to non-revolving loans such as car loans, personal loans and student loans. This type of lending increased 6.4 percent. Credit card borrowing grew just 1 percent after dropping 1.3 percent in March. This is the second month in a row that consumer borrowing grew less than projected.
- May retail sales picked up for many of the major general merchandise and specialty chains, with a number exceeding projections. Warmer weather as well as discount prices received the credit for the sales growth. (I will share the U.S. Commerce Department's sales numbers for retail trade including bars and restaurants in next week's blog post.)
- Consumers' daily spending reached the highest level since 2008 with both higher income and lower income Americans increasing their spending according to a Gallup Poll of more than 15,000 people.
- Small business owners are switching from survival to expansion mode in 2013, according to a survey by Dell and Intel as reported by Sunovis Financial. Almost half of the participating small business owners plan on growing this year and 38 percent will focus on long-term growth.
Foodservice News This Week:
- Should restaurants hire better people? This was a question raised by a writer for Forbes noting that a Michigan-based Wendy's franchisee let go 500 "slackers" with the goal of replacing them with higher quality employees. It is uncertain how this change will play out but it does raise some interesting issues about the foodservice industry. Let's face it: Neither the employers nor the customers really expect much from the staff, which is probably the basic difficulty. The customers keep coming and managers keep accepting poor work performance figuring the next kid they hire might be even worse. Hey, what do you want for minimum wage? Yet, the United States Marines fought not only the enemy but hunger, disease, wounds and death on Guadalcanal and overcame them all for $21 a month. Closer to home, a number of years ago, the top hotel for service in the U.S. said the secret was getting its young staff to sign off on the importance of their jobs and empowering them to solve customer service problems. The hotel admitted paying comparable wages to other far less prestigious places but always had a backlog of resumes for people who wanted to work there. Maybe it is just a matter of what is expected.
- The NPD Group forecasts restaurant visits for the dinner daypart will grow by 4 percent through 2022. This segment has been experiencing a decline since 2006. Once again, changes in Millennials' (ages 19-34) eating habits get the blame for the decline and older adults who will eat more dinners out get credit for driving the increase. Millennials were also the focus of a New York Times article that points out young adults still patronize fast-food operations but now tend to eat at McDonald's, Burger King, and Wendy's less often but are switching to newer burger chains such as In-N-Out Burger.
- McDonald's May sales report exceeded expectations, as has become the norm. Worldwide comparable store sales increased 2.6 percent and U.S. same-store sales climbed 2.4 percent. In Europe, where the company has been struggling, same-store sales posted a 2 percent increase. The company attributes the U.S. same-store sales increase to breakfast, chicken items and "the ongoing appeal of everyday value." In fact, the world's largest burger chain could have a rosy future, according to a recent Forbes story. The writer speculates the expansion of newer burger chains like Five Guys and Smashburger is happening at the expense of the older fast food operators, such as Wendy's and Burger King. This would leave the QSR field to McD's.
- Who are the next hot chains? Yahoo! Finance came up with some candidates: Cups Frozen Yogurt, Let's Go Yogurt, Burger Fi, 100 Montaditos, The Melt, Little Greek Restaurant, The Veggie Grill, Umami Burger, Piada Italian Street Food, and Fresh Healthy Café.
- Health insurance was one of topics covered in a Wall Street Journal interview with Ron Shaich, CEO of Panera Bread Company. The article revealed that roughly 16 percent of the Panera employees who are currently eligible for health care insurance choose to participate in the program.
- Dunkin' Donuts joins the ranks of those chains upgrading their design and décor. The chain's goal is to provide a more welcoming and comfortable atmosphere that encourages customers to hang around, a la Starbucks.
- Bob Evan's has announced one of their major objectives this year is to finish their remodeling program for their remaining 233 restaurants.
- Growth Chains: Subway plans on having 50,000 locations by 2017 and 100,000 by 2030. Chipotle has signed leases for ShopHouse Southeast Asian Kitchen in Los Angeles and Washington, D.C. Donato's Pizza has signed a franchise agreement for a store in North Carolina with plans for "many locations" in the Raleigh area. Burger King has expanded their delivery program to Phoenix and Denver. McDonald's plans on doubling the number of locations in Malaysia to 500 by 2020. Wingstop has signed franchise agreements for 4 stores in Cincinnati. Moe's Southwestern Grill has just opened their 500th restaurant and plans opening 50 more by the end of the year.
- Comparable Store Sales Reports: Bob Evans (Up 0.5 percent), Cracker Barrel (up 3.1 percent), Good Times (up 16 percent), and McDonald's (up 2.4 percent).
For details and same store sales of other chains, please click here for the Green Sheet.