Even as restaurant operators continue the intense battle for dollars in a gloomy business landscape, several recent indicators point to an economy that is trying to shake off its lethargy.
Data released late last month pointed to slight upticks in such bellwethers as consumer confidence and spending as well as housing starts, although any cautious optimism was tempered by the backdrop of high unemployment, and restaurant sales and traffic trends that remain negative.
The latest National Restaurant Association survey of operators showed that although same-store sales remained negative in July, restaurant operators reported an improvement from June’s soft performance. In addition, more operators reported a positive future economic outlook than had three months earlier.
“Although restaurant operators continue to report soft same-store sales and customer traffic levels, they are more optimistic about improving conditions in the months ahead,” Hudson Riehle, senior vice president of research and information services for the NRA, said in a statement. “Restaurant operators reported a positive six-month economic outlook, and the proportion expecting higher sales rose to its highest level in three months.”
In the NRA’s July survey, released Aug. 31, 26 percent of restaurant operators reported a same-store sales gain between July 2008 and July 2009, up from a record-low 22 percent of operators who reported positive sales in June. Still, the majority, or 58 percent, reported a same-store sales decline in July, which was still down slightly from 61 percent who reported negative sales in June.
More operators in July—31 percent—said they expect to have higher sales in six months, compared with the same six months last year. In June, 24 percent reported they felt the same way about their six-month outlook. Looking generally at economic conditions, 32 percent of restaurant operators said they expect economic conditions to improve in six months, up from 24 percent who said they felt optimistic last month.
The results, which manifest as the NRA’s Restaurant Performance Index—a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry—stood at 98.1 in July, up 0.3 percent from the June level.
On the macro level, both housing data and consumer confidence improved slightly. There was also a small uptick in consumer spending, which was sparked by the federal government’s “cash for clunkers” auto program.
“Consumers remain reluctant to spend, although perhaps not quite as afraid as a few months ago,” a Standard & Poor’s market analysis report said.
Meanwhile, The Conference Board, a private research group, said its index of consumer confidence increased to 54.1 in August from a revised 47.4 in July.
The present situation index, a gauge of consumers’ assessment of current economic conditions, rose to 24.9 in August, from 23.3 in July, according to The Conference Board. Consumer expectations for economic activity over the next six months jumped to 73.5 from July’s 63.4.
“Consumer confidence, which had posted back-to-back monthly declines, appears to be back on the mend,” Lynn Franco, director of The Conference Board consumer research center, said in a statement. “Consumers were more up-beat in their short-term outlook for both the economy and the job market in August, but only slightly more upbeat in their income expectations. And, as long as earnings continue to weigh heavily on consumers’ minds, spending is likely to remain constrained.”
Another gauge of consumer sentiment, tracked by Reuters/University of Michigan Surveys of Consumers, rose in late August, but still remained at its lowest level in four months.
The report, released late last month, gave a final reading of 65.7 in August, down slightly from 66 in July, but ahead of readings of 63.2 earlier in the month.
“Confidence rebounded in late August as consumers increasingly expected improved conditions in the national economy even as they reported the worst assessments of their finances since the surveys began in 1946,” the report said.
As confidence improved, actual spending only edged up 0.2 percent in July, according to the latest government figures. Pundits attributed the marginal increase to the “cash for clunkers” program, which allowed consumers to trade in older cars for cash.
Housing data showed some improvements as well. Home prices edged up, sales of new homes increased and inventories of new homes declined, which reports said pointed to a stabilization of the housing sector. Sales of new homes surged 9.6 percent in July, the largest increase since February 2005 and the fourth consecutive monthly increase.
Some restaurant operators are reporting improved results. Burger King, for example, said its same-store sales in the United States and Canada fell 4.5 percent for the quarter ended June 30, but had improved each sequential month and look to continue to improve in the company’s current first quarter.
“Even though the trend is positive, we remain cautious in our fiscal 2010 outlook due to the many consumer uncertainties,” said John Chidsey, chairman and chief executive of Burger King Holdings Inc. in Miami.
Chidsey noted that an unemployment rate at a 25-year high and depressed income levels will doubtless affect how much consumers spend on dining out. To attract spending-shy patrons, the No. 2 burger chain said it would promote value-centric menu items, like $1 sandwiches, as well as premium products, like the new XT Steakhouse Burger.— [email protected]
