Foodservice Equipment Reports Fortnightly

Welcome to FER Fortnightly Online Newsletter
February 21, 2006

Regulatory Report:
Sponsored by:
Atlas Metal Industries Inc.
NYC Expands Online Inspection Ratings
SoCal Gas Announces 2006 Rebates
Frederick, Md., Health Dept. Now Okays Restaurant Building Permits
Flagstaff Gets Jump On State Junk Food Ban
Maine's EU-Style Electronics Recycling Bill Takes Effect

Industry Report:
Sponsored by:
Hotelex Shanghai,
April 4-7, 2006

Tampa Ops Get 'F' For Funky In Science Project
Firehouse Subs Runs Fire Drill For New Unit Openings
Industry Gorilla Plans To Open A Unit Per Pound In '06
Keith W. Carpenter, Wood Stone, Passes

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In This Section:
MAFSI Reports Record Growth In 4Q; Forecasts Strong 2006
NRA Performance Index Rises, But Capital Expenditures Dip
Blue Chip 2006 GDP Forecast Slips
Gas Prices, Rising Interest Rates, Have Consumers A Bit Jittery

This issue's Regulatory ReportSponsor: Atlas Metal Industries Inc. Industry ReportSponsor: Hotelex Shanghai, April 4-7, 2006

Economic Report FER's Customer Choice Dealer Awards

MAFSI Reports Record Growth In 4Q; Forecasts Strong 2006
Sales of foodservice equipment, supplies and furnishings rose a record 3.8% in the fourth quarter of 2005, compared to the year earlier period, according to the Business Barometer fielded by the Marketing Agents Association for the Foodservice Industry. It's the strongest sales gain in any quarter since MAFSI began the survey in '02. The Barometer is based on reports of sales of like lines by rep groups throughout the United States and Canada.

The reps are also optimistic about sale prospects in '06. They forecast an overall gain of 5.4% for the year, only slightly less than the 5.6% they predicted for '05 at this time last year. The forecast for the first quarter '06 is 3.3%.

While overall growth has been positive for eight straight quarters, sometimes approaching 3%, the fourth quarter '05 was nearly a full point higher than any previous quarter. Growth of all four major product categories exceeded 3%. Equipment sales showed a 4% gain while durable supplies rose 3.9%. Tabletop and furnishings grew 3.1% each.

All five regions, including Canada, posted strong gains. Overall sales grew 5.1% in the West, 3.9% in the South, 3.8% in Canada, 3.4% in the Northeast and 2.8% in the Midwest.


NRA Performance Index Rises, But Capital Expenditures Dip
Continuing its post-hurricanes bounce-back, the Restaurant Performance Index maintained by the National Restaurant Association reached a six-month high in the December reading. The overall Index rose 0.5 point, to 102.2. Any reading above 100 indicates the restaurant market is expanding.

Both the Current Situation and Expectations Indexes posted gains. The CSI showed three of four components rising, with an overall gain of 0.7 point to 101.1 The EI was up 0.2, to 102.8, with two of four components higher.

The two capital expenditures components, however, were down in December. In the Current Situations Index, capital expenditures for the quarter fell 0.7 point to 99.4, below the 100 tipping point. In the Expectations Index, capital expenditures for the next six months declined 0.2 to 102.

Declines in the capital expenditure components are not unusual at this time of year, as operators look ahead to the slower first quarter.

Blue Chip 2006 GDP Forecast Slips
The first quarter is looking especially strong, but the rest of the year might not quite match the same pace, according to projections by economists published in the Blue Chip Economic Indicators monthly newsletter.

The consensus forecast of real growth of U.S. 2006 gross domestic product fell a tenth of a point to 3.3% in the February survey, as economists tried to factor both a robust first quarter and an expected minor economic slowdown later in the year. The panel expects lower growth in consumer spending, housing and capital spending, and now forecasts growth of 3.1% and 3% in the third and fourth quarters of '06.

Current quarter growth, on the other hand, is expected to show a strong rebound from the disappointing 1.1% real GDP growth estimated for last quarter. The economists predict growth of 4.1% in the first quarter '06. Growth in the second quarter is forecast at 3.4%

Behind the slowdown in consumer spending are the effects of structurally higher fuel prices, rising interest rates, moderating home price appreciation and less home equity "extraction." The economists also expect nonresidential fixed investment by business to grow at a more moderate 7.4% rate in '06, versus 10.8% last year.

And while the forecast is for lower consumer price inflation, the economists expect most of the decline to result from anticipated drops in energy and food prices. The so-call "core" inflation rate is predicted to rise 2.3% in '06, compared with 2.2% in both '05 and '04.

Gas Prices, Rising Interest Rates, Have Consumers A Bit Jittery
With all the forecasts we've been doing since late November, we haven't looked closely at consumer sentiment and expectations. Since consumer confidence is a very powerful indicator of dining-out behavior, it's time we did.

Overall, consumer confidence and expectations have rebounded sharply from their post-Katrina lows in October 2005. The Consumer Sentiment Index maintained by the University of Michigan's Surveys of Consumers stood at 91.2 in January, down minimally from the 91.5 reported for December and well ahead of the 74.2 in October.

The number, however, is below the 95.5 recorded in January last year and masks quite a bit of consumer uncertainty. The Expectations Index fell in January to 78.9 from 80.2 in December and is well below the 85.7 recorded January '05.

The problem, says Surveys Director Richard Curtin, is the back and forth of gas prices as well as rising interest rates. Sentiment improved early in January, but fell toward the end of the month when gas prices ramped up again. "The recent increases in gas prices have thrown a cold blanket on consumers' hopes for additional declines in gas prices," he said. "Consumers view high gas prices as a threat to their living standards and a threat to the ability of the economy to create new jobs."

And with consumers now expecting gas prices to remain above the $2-a-gallon level for several years, as well as an anticipation of higher interest rates and slowdown in housing appreciation, we can expect this uncertainty to continue.

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