Do Swings In NRA’s Current Situation Index Signal A Slowdown?

One month they’re up, the next they’re down. The components that track current same-store sales and customer traffic exhibited wild swings once again in the National Restaurant Association’s May Restaurant Performance Index survey—this time downward. These indicators have been whipsawing wildly month to month since December 2015, when a steep drop helped drive the overall RPI below 100 for the first time in 33 months. Since one sign of economic change is such vacillations, the back-and-forth movement of these two indicators raises the question of whether the foodservice market is at an inflection point.

Fortunately for the equipment and supplies market, the pronounced changes in operator sales and traffic have not dampened the RPI’s two capital-spending indicators, which continue to run at levels seldom if ever before seen in the RPI’s 14-year history. The two capital-spending components of the RPI in the May survey remained well above the 100 level that NRA uses to signal expansion from contraction in all RPI indices and components.

After a second round of big jumps in April from March, the same-store sales and traffic components fell 3.2 and 3.8 points respectively. Both fell below the 100 level, with the same-store sales index falling to 99.8 and traffic down to 98.1. The overall current Situation Index fell 1.8 points to 100.2, with the labor component off 0.4 point.

One puzzling aspect of the swings in the sales and traffic indicators is that the other six components of the RPI have been tracking within very narrow ranges, all but one in positive territory. The outlook for business conditions in six months slipped into contraction territory in June 2015, went very moderately positive again August through October, and has mostly remained in the 99.9 to 99.4 range ever since. But the indicator fell 1.1 points to 98.6 in May, its lowest level since November 2012.

In contrast, the outlook for same-store sales in six months remained very positive; the indicator tracking it has not fallen below 102.2 in all of 2016. It’s as if restaurant operators keep expecting a general economic slowdown but don’t see it affecting their future sales. It may be that rising labor costs and the turmoil of the presidential election have operators watchful.

What is clear is that current and anticipated capital spending remains very strong by historical measures. The component that tracks operators’ capital-spending during the past three months held steady 102.7 in the May survey with 64% reporting a capital buy, the same as in the April survey. The current capital-buying index had never reached the 102 level in the entire history of the RPI, which began in June 2002, until December 2014. May’s 102.7 matched April and is the strongest reading this year.

The indicator that tracks plans to make a capital purchase during the next six months rose in May to 102.4, up 0.7 point from April, and its highest level since January. Sixty-two percent of those surveyed expected to make a buy, up from 58% in the April survey.

The full May RPI Report, press release and a video commentary by Hudson Riehle, the NRA’s senior v.p.-research and information service, can be found at restaurant.org. “””