State of the American Consumer: Caution remains, but signs point toward improvement

A majority of American consumers remain uncertain about the economy and cautious in their spending habits, based on the results of a new NRA survey.  On the positive side, the survey suggests that this recession mindset is not a permanent state for consumers, and they will continue to come out of their shell as their personal finances improve, according to the NRA’s chief economist Bruce Grindy. His Economist’s Notebook commentary and analysis appears regularly on Restaurant.org and Restaurant TrendMapper.

Although the official trough of the Great Recession was more than five years ago, many American consumers have yet to climb out of the rut, according to a new survey* commissioned by the National Restaurant Association.  When asked earlier this month to rate the current state of their own personal finances, a majority of adults described them as either fair (36 percent) or poor (18 percent). Less than one in 10 adults say their personal finances are in excellent condition.

Flash back to 2010 when the economy was just beginning to add back some of the nearly 9 million jobs that were lost during the recession, and the responses to the same question were almost identical. Nearly six in 10 adults said their personal finances were in fair (41 percent) or poor (18 percent) condition, while only seven percent described them as excellent. 

 

With the personal economies of many consumers trending sideways, it’s not surprising that this persistent recession mindset is negatively impacting spending. Consumer spending, which generally helps propel the economy out of a recession, has been lackluster during the current recovery. 

In the 21 quarters since the official end of the recession, total personal consumption expenditures rose just 11.8 percent in inflation-adjusted terms, according to the Bureau of Economic Analysis. During the same period following the previous three recessions, consumer spending increased by an average of 21.8 percent. 

Post-recession spending has been even more sluggish for the Services category, which includes many discretionary sectors like restaurants. Real spending on services rose just 8.5 percent during the last 21 quarters, or less than half of the average 19.6 percent gain that followed the previous three downturns. 

Even now, a solid majority of American consumers remain reticent to spend. When asked to describe their personal spending behavior right now, seven in 10 adults say they are holding back on spending in some fashion. 

Twenty-seven percent of adults say they “are very concerned about the economy and are holding back significantly on spending,” while 42 percent say they “are taking the wait and see approach and are holding back somewhat on spending until the economy improves.” Only three in 10 adults (29 percent) say they “are confident in their financial situation and are not holding back on spending.”

While it’s not surprising that lower income households are more likely to be curtailing spending right now, it is somewhat unexpected that a majority of higher income households are also cutting back. Among individuals in households with income of $100,000 more, one in five say they are holding back significantly on spending, while 35 percent are holding back somewhat. 

Restaurants are benefiting from falling gas prices

The restaurant industry appears to be reaping the benefits of falling gas prices, as sales continued to trend higher in September. This boost in cash on hand, along with consumers’ elevated pent-up demand for restaurants, suggests that the business environment for restaurants should continue to improve in the months ahead, according to the NRA’s chief economist Bruce Grindy. His Economist’s Notebook commentary and analysis appears regularly on Restaurant.org and Restaurant TrendMapper.

Gas prices continue to trend steadily lower, and the restaurant industry appears to be among the sectors reaping the benefits. According to preliminary figures from the U.S. Census Bureau, eating and drinking place sales totaled $48.1 billion on a seasonally-adjusted basis in September, up 0.6 percent from August and the strongest monthly volume on record.  

The September performance represented the seventh increase the last eight months, and each of the monthly gains were at least 0.4 percent. The most recent growth mirrored a downward trend in gas prices, which fell $0.50 since the end of June. This boost in consumers’ disposable income typically benefits discretionary sectors like restaurants, in which a large proportion of the growth is driven by cash on hand.  

Despite the recent upward trajectory in sales, consumers’ unfulfilled demand for restaurants still remains elevated in historical terms, according to new National Restaurant Association research.  

In a national survey of 1,000 adults conducted October 2-5 for the NRA by ORC International, consumers were asked if they are using restaurants as often as they would like. The answer was an emphatic no, with 42 percent of adults reporting they are not eating on the premises of restaurants or using takeout or delivery as frequently as they would like.  

Putting these results in a recent historical context, consumers’ pent-up demand has eased somewhat from a year ago at this time. In an identical survey fielded in September 2013, 47 percent of adults said they are not eating on the premises of restaurants as frequently as they would like, while 49 percent said they would like to utilize take-out and delivery more often.

However, unfulfilled demand still remains well above pre-recession levels. On a consistent basis during the stronger economic environment of the mid-2000s, typically only one-quarter of adults said they were not patronizing restaurants as often as they would like.

Consumers’ elevated pent-up demand for restaurants, combined with the economic boost that they will get from a stronger job market and falling gas prices, suggests that the business environment for restaurants should continue to improve in the months ahead.  

Restaurant indicators a mixed bag in 2014

The National Restaurant Association’s (NRA) Chief Economist Bruce Grindy looks back at trends in key indicators during the first half of 2014. Although overall sales are trending in a positive direction, rising food costs continue to pose challenges for restaurant operators.

Below is a breakdown of the trends in key indicators during the first half of the year, and what it all means for the restaurant industry in the months ahead.

Sales and Traffic
The NRA’s Restaurant Performance Index (RPI) stood above 100 during each of the first six months of the year, which represents expansion in the composite index of industry indicators.  Looking inside the RPI, the Current Situation indicators had a sluggish start to the year, which was due in large part to challenging weather conditions. 

As a result of soft same-store sales and customer traffic levels, the Current Situation component of the RPI fell below 100 in January and February, which signifies contraction.  However, sales and traffic results improved during the March – June period, and the Current Situation Index rose above 100 and into the expansion zone. 

Overall, restaurant industry sales trended in a generally positive direction during the first half of 2014.  Total eating and drinking place sales – which takes into account same-store sales as well as unit growth – reached a record high of $47.3 billion in July on a seasonally-adjusted basis, according to U.S. Census Bureau data.  Eating and drinking place sales were up 4.5 percent on a year-to-date basis through July, which is more than double the 2.2 percent increase in grocery store sales during the same period. 

Jobs
Along with an improving sales environment, the restaurant industry continued to add jobs at a steady pace in recent months.  Eating and drinking places added more than 187,000 jobs during the first seven months of 2014, which brings their post-recession growth to a total of nearly 1.4 million jobs. 

Overall, eating and drinking places added jobs at a 3.1 percent rate on a year-to-date basis through July, which is more than a full percentage-point above the 1.8 percent gain in total U.S. employment during the same period.  In addition, it puts the restaurant industry on pace to post job growth above three percent for the third consecutive year, which would represent the first such occurrence since the 1993 – 1995 period.

Food Costs
Meanwhile, the restaurant industry continues to be challenged by soaring food costs.  Average wholesale food prices registered sharp gains in six of the first seven months of 2014, according to the Bureau of Labor Statistics.  As a result, wholesale food prices were up 7.1 percent in the 12 months ending July 2014, which represented the strongest 12-month gain in nearly three years.  Overall, wholesale food prices are on pace to post their strongest annual increase in three years, and fifth consecutive annual gain overall. 

Menu Prices
While food costs have trended sharply higher, menu price gains have remained relatively tame.  According to the Bureau of Labor Statistics, menu prices rose 2.4 percent in the 12 months ending July 2014.  This was slightly below the 2.7 percent increase in grocery store prices during the same 12-month period, but above the 2.0 percent gain in overall consumer prices. 

If the trend holds, 2014 will mark the continuation of an extended period of relatively modest growth in menu prices.  Between 2009 and 2014, menu prices increased at an average annual rate of just 2.2 percent, well below the 3.6 percent average annual gain registered during the previous five-year period (2004 – 2009).  Moreover, average wholesale food prices increased at a 4.4 percent average annual rate between 2009 and 2014, which put considerable pressure on bottom lines during a challenging economic environment. 

Outlook
Despite the challenges, the underlying fundamentals point toward an improving business environment in the months ahead.  The national economy added more than 200,000 jobs in each of the last six months, which is a streak that last happened in 1997. 

In addition, real disposable personal income grew at annualized rates above 3 percent during the first two quarters of 2014.  We have to go back more than eight years to find consecutive quarters with income growth above the 3 percent level. 

An improving economy will help consumers become more confident in their personal financial situation, and put them in a better position to burn off their elevated pent-up demand for restaurants. 

For their part, restaurant operators are generally on board with an improving economic environment.  The RPI’s Expectations component, which measures restaurant operators’ six-month outlook for four industry indicators (same-store sales, employees, capital expenditures and business conditions), stood above 100 during each of the first six months of 2014.  This signifies that restaurant operators are generally optimistic about business conditions in the months ahead.

Read more from the Economist’s Notebook and get additional analysis of restaurant industry trends on the newly revamped Restaurant TrendMapper (subscription required)

Economist's Notebook: Louisiana adds nearly 100 new locations in 2013

The National Restaurant Association's Chief Economist Bruce Grindy analyzes trends in restaurant unit growth on the state level.  California led the nation in restaurant establishment growth in 2013, followed closely by New York.  In percentage terms, Kentucky set the pace with a solid 5.1 percent gain in restaurant locations.

Nationally, the restaurant industry added a net 8,362 eating and drinking place establishments* in 2013, according to newly-released data from the Bureau of Labor Statistics.  The 2013 expansion followed stronger gains of 9,944 locations in 2011 and 11,649 locations in 2012.

On the state level, trends were generally positive in 2013.  Forty states added eating and drinking place locations in 2013, while only 11 states (including the District of Columbia) experienced a decline in units. 

Like the recent national trends, growth was somewhat less widespread on the state level in 2013, relative to the two previous years.  Forty-two states added locations in 2011, while 44 states saw unit growth in 2012. 

California led the nation by adding a net 1,368 eating and drinking place locations in 2013, followed closely by New York with a net increase of 1,237 units.  Texas added a net 986 restaurant establishments in 2013, which represented the first time in four years that the Lone Star State didn’t add at least 1,000 units. 

Florida, after leading the nation in 2012 by adding 1,714 units, expanded its restaurant industry by 818 locations in 2013.

In percentage terms, Kentucky led the way with a solid 5.1 increase in eating and drinking place establishments in 2013.  South Carolina saw its restaurant industry expand by 3.8 percent in 2013, while Iowa added locations at a 3.6 percent rate. 

Louisiana saw a modest increase of 1.2 percent new restaurant locations in 2013, up 99 locations over the previous year’s 8,307.

In contrast, Minnesota lost a net 126 eating and drinking place locations in 2013, a 1.3 percent drop from its 2012 level.  North Carolina lost a net 84 eating and drinking place establishments in 2013, while the District of Columbia’s eating and drinking place sector shrunk by a net 68 locations. 

Read more from the Economist’s Notebook and get additional analysis of restaurant industry trends on Restaurant TrendMapper (subscription required).

*The establishment figures, which are based on unemployment insurance filings of businesses that have wage and salary employees, represent the most comprehensive census of establishments with payroll employees on the national, state and local levels.

NRA launches improved Restaurant TrendMapper

The National Restaurant Association has launched a new and improved version of its Restaurant TrendMapper online subscription service that will help industry professionals improve their business performances.

The service will help restaurateurs, analysts and allied industry professionals:

Keep up-to-date with the latest economic indicators and trends that affect their business environment

• Stay current with trends through the NRA’s Restaurant Performance Index
• Data on sales, employment, capital expenditures, and wholesale food and menu price inflation 

“Restaurant TrendMapper is a unique resource of industry data and analysis in easy-reference form, which eliminates the need to constantly dig through complicated data files to get a snapshot of what’s going on in the industry,” said Bruce Grindy, the NRA’s chief economist and author of Restaurant TrendMapper. “The service provides running analysis of key industry indicators that are crucial for tracking trends and planning strategically for the future.”

Grindy also said the new and improved site would allow operators to “keep an eye on food and commodity prices is helpful for menu planning; if beef is becoming more expensive, the operator might temporarily cut back and promote other proteins until price pressures ease.”

“Restaurant TrendMapper also contains useful data and analysis for suppliers to the restaurant industry.  Our monthly tracking breaks down capital expenditure plans by industry segment, which can help allied professionals anticipate their own business conditions in the months ahead,” he added.

Restaurant TrendMapper also features: 

• Continually updated NRA research and forecasting
• Analysis of the latest data from government sources, such as the Bureau of Labor Statistics and U.S. Census Bureau
• Downloadable data files for use outside of the online platform in both text and chart formats 

In addition, industry professionals also can track topics, such as:

• Wage and hour trends
• Tourism
• Restaurant locations
• Macro-economic indicators, and select state and regional data 

NRA members interested in receiving Restaurant TrendMapper are eligible for exclusive pricing on it and all other research publications.