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In This Section:
Special Focus: FER Forecasts E&S Sales Growth, Big Price Increases
For Operators, Things Still Improving But More Slowly
Consumer Sentiment Down, GDP Growth Below Expectations
This issue's Industry Report Sponsor: Atlas Metal Industries Inc. | Regulatory ReportSponsor: Hatco Corp.
 
Special Focus: FER Forecasts E&S Sales Growth, Big Price Increases
By FER Publisher Robin Ashton. [full story]
For Operators, Things Still Improving But More Slowly
The most recent tracking of commercial operator performance from Chicago-based NPD FoodWorld and the National Restaurant Association shows operator sales and traffic gains are mixed and/or moderating. .
Michele Schmal, v.p. at NPD FoodWorld, told the audience in the opening address at the Equipment & Supplies Strategic Summit that overall traffic growth at restaurants was 1% in NPD’s third quarter, ending in August. This follows growth of 2% in the quarter ending May, the most positive quarter since the operator downturn began in 2002. "The trends remain positive for most operators," she said, including major QSR mid-scale chains tracked weekly by the firm’s SalesTrak report. "But the rate of growth distinctly moderated over the summer."
This "still positive, but…" trend is also seen in September’s Restaurant Performance Index from the NRA. The overall index rose the minimum 0.1 point on a rebound in same-store sales and traffic in September, following declines in August. It was the first positive move in the overall index since a very, very modest, but consistent, slide began after February. It was also the first upturn in the Current Situation Index since then. But the Expectations Index component turned back down in September, following its first positive move in months in August.
Both capital expenditures components, "purchase during last three months" in the Current Situation Index, and "planned purchase next sixth months" in the Expectations Index, were lower in September.
So-called "waffling" in any economic indicator is generally a sign of a turn. But in this case, the reasons are clear. Gasoline price hikes hurt operator traffic and sales in late summer and early fall, and consumers are concerned about slow job growth. All this has hurt both consumer sentiment and restaurant traffic and sales growth. Since gasoline prices are beginning to moderate, the elections are over and most economists predict improving job growth, if slowly, expect this situation to be temporary. Overall operator prospects remain positive, supporting our 2005 forecast (see separate story).
Consumer Sentiment Down, GDP Growth Below Expectations
Yes, this is another of our catch-all articles, this one on macro indicators. We could have three short stories or one big one and the big one allows us to analyze and interpret.
Here are the facts:
1) The University of Michigan’s monthly reads of consumer sentiment and expectations dropped in October as high gas prices, worries about job growth and diminished expectations about the next six months pulled down both indices. Both indicators are still ahead of last year at this time.
2) The second read (the Commerce Dept. always makes three before it really changes things later) on third quarter real gross domestic product (GDP) growth came in at 3.7%, well below Bloomberg’s forecast 4.3% and even below the more conservative Blue Chip’s 3.8% forecast. It’s mostly car sales (up) vs. airplane sales (down). Business spending exceeded expectations. Retail sales were disappointing, including foodservice.
3) Bush will be President for another four years. The known is always better than the unknown, at least in business. The markets like it, big business likes it, the restaurant industry likes it because there will be less pressure to raise the Minimum Wage and an overall climate of reduced regulatory pressure.
The analysis here is that most forecasters, including us, have already absorbed the hiccup in growth caused by high gas prices, dragging job growth and electoral uncertainly. Our Blue Chip friends see healthy, but moderate GDP growth of 3.5% real next year. We still expect foodservice and the E&S industry to march along or perhaps even exceed the general economy.
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