How Restaurant Investors Can Interpret Initial Jobless Claims

Restaurant Indicators: Cautious Days ahead for Investors

(Continued from Prior Part)

Initial jobless claims

The initial jobless claims report is the quickest way to gauge the health of the US labor market. It indicates the number of people filing for unemployment. Naturally, if fewer people are filing such a claim, more people are employed.

The U.S. Department of Labor Statistics issues jobless claims data weekly. In the week ending June 18, 2015, claims fell by 12,000 to 267,000. This was right in the consensus range of 265,000 and 280,000.

This number suggests a low layoff rate in the market. In the chart above, you can see that the four-week moving average of jobless claims has trended downward since 2010. This indicates growing strength in the US labor market. For the fifteenth straight week, jobless claims came in under 300,000. Usually, fewer than 300,000 claims means strength in the job market.

How can this data help restaurant investors?

Jobless claims indicate a tight labor market. A tighter job market may put pressure on wages. Restaurant investors should keep a close eye on the cost line items of their respective restaurant stocks.

Jobless claims also effect the Consumer Discretionary Select Sector SPDR Fund (XLY). XLY invests ~1% of its holdings in Chipotle Mexican Grill (CMG), 0.3% in Darden Restaurants (DRI), 3% in Starbucks (SBUX), and 1.5% in Yum! Brands (YUM).

Next in this series, we’ll look at two more employment indicators—the unemployment rate and the labor force participation rate.

Continue to Next Part

Browse this series on Market Realist:

• Part 1 - Key Restaurant Indicators That Good Investors Track

• Part 2 - Empire State Index Sends Restaurants the Wrong Message

• Part 4 - How Unemployment and Labor Participation Rates Affect Restaurants