Rethinking The FER Forecast As We Enter 2014

It’s been almost a month since our last FER Fortnightly and a great deal of new economic data has been released. All of it’s good. It turns out third-quarter U.S. real gross domestic product grew 4.1% in the final quarterly estimate, much higher than originally forecast. (The Blue Chip Economic Indicators consensus forecast of 3Q growth in early October, as the government shutdown and debt-ceiling fight was unfolding, was only 2%.) All the analysts talk about how much excess inventory building was an issue, but still, it was the best quarterly GDP growth in a long time.

Consumers and businesses got worried for a few weeks about the government dysfunction and then shrugged it off, partially because jobs numbers continued to improve. Retail sales for nondurables including foodservice are OK. November’s National Restaurant Association Restaurant Performance Index and other foodservice tracking services, such as Miller Pulse and Black Box Intelligence, show consumer use flat to mildly positive. Add to all of this the record highs for the equity markets and continuing improvements in housing prices—half of foodservice is purchased by wealthier Americans—and it’s all pretty good news.

On the foodservice side, NPD Group released its forecast for 2014 on Dec. 17. It expects a 1% restaurant traffic gain in 2014 and consumer spending up 3%. This is mildly better than the estimated flat traffic and 2% rise in 2013. The current Technomic forecast for total foodservice in ’14 is a 3.8% nominal gain, up from 3% in ’13.

So everything looks pretty upbeat as we start the year. We probably will end up raising our 3.3% estimate of 2013 E&S market nominal sales growth—things have strengthened quite a bit since the slow first quarter 2013—but for now we’ll stick with our 4.1% forecast for 2014. The indicators look better, but not dramatically better. It’s a mature market; a lot of pent-up demand has already been wrung out of the restaurant market. We have hopes for the noncommercial and spec markets, which have lagged, but those lead times are long. Moderately better growth is still the expectation.