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The ADP Employment Report and Its Influence on Restaurant Stocks

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The ADP National Employment Report

The ADP reported a moderate addition of 201,000 private payroll employees in the month of April 2015. Economists’ consensus estimate was for a range between 180,000 and 239,000 job additions. The ADP figure was higher than the previous month’s addition of 165,000 but close to the five-year average of 197,000, indicating business as usual.

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Employment and restaurants

The ADP employment report tracks 23 million US employees across 400,000 businesses in the US. The report only takes into account private payrolls. With this indicator close to its average, there’s no sign of weakness in the labor market.

A moderate gain is positive for the stock markets. Employment data are closely monitored by the Federal Reserve. So far, the Fed has maintained near zero rates that are driving the bull markets.

The ADP employment report may not always indicate the employment situation correctly. Nevertheless, when there are few job additions to the private payroll, it does cause concern about the growth of the economy.

Weaker employment data would signal sluggish wage inflation. If that were the case, the likelihood of the Fed increasing interest rates in the short term would be diminished.

A delayed rate hike would be positive for restaurant stocks such as Wendy’s (WEN), Bloomin’ Brands (BLMN), Dunkin’ Brands (DNKN), and Starbucks (SBUX).

The Consumer Discretionary Select Sector SPDR Fund (XLY) invests 10% of its portfolio in restaurant stocks.

Investors must closely watch employment data. These data can spark concerns over a rate increase and negatively influence restaurant stock prices. In the next part of this series, we’ll look at another employment indicator—jobless claims.

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