Could sit-down restaurant sales be an economic indicator? Recent data showing a rise in national sales for full- and limited-service restaurants suggests a definite relationship between restaurant sales and the health of the national economy. However, it may be a bit premature for real estate agents to celebrate an increase in business.
Nationally, we have experienced the fastest growth in customer spending at full-service restaurants since the 1990s, according to the U.S. Census Bureau (the Census). Restaurant sales (earnings) for January 2011 to January 2012 are reported at $220 billion a year at full-service restaurants and $211 billion a year at limited-service restaurants.
However, full-service restaurant expenditures nationally were 8.7% higher in January 2012 than they were one year earlier.
Restaurant sales patterns typically coincide with gross domestic product (GDP) growth. When GDP rises, restaurant sales increase; when GDP languishes, restaurant sales fall.
However, recently reported numbers of both GDP and restaurant sales show an unusual break from previous patterns. Restaurant sales are increasing at a much more rapid level than GDP, indicating restaurant sales may be an independent economic indicator.
first tuesday take:
The Census’ problem may not be in their numbers, but with the GDP numbers.
It is widely believed that the GDP is being under-reported and the economy growing at a faster rate than initially estimated. We had the same, but reverse problem when Congress was debating the stimulus package. Then, the GDP was over-estimated, leading the government to believe the recession was not as severe as it really was. In fact, if the actual GDP of the time had been considered, the stimulus would have been half again larger than it was.
Examining the relationship between restaurant sales and economic growth on a local level, California’s numbers are less dramatic than national Census data suggests for the U.S. According to the California State Board of Equalization (SBOE), total state restaurant sales have indeed increased of late, but this is to be expected as other types of consumer expenditures have risen at a similar rate.
Between 2008 and 2009, total state restaurant sales dropped over 4%, in keeping with expectations. Since 2009, restaurant sales in California have been growing steadily — also to be expected as the economy slowly gets back on its feet.
However, as an economic indicator, or predictor, restaurant sales have little merit. Based on figures from 1990 to 2010, California restaurant sales have not given evidence of economic change before the fact. Rather, sales numbers seem to “go with the flow” of recession periods and subsequent economic rises.
Increased sales activity at California’s better restaurants could even be a result of austerity-weary Californians. A dinner is not a significant purchase and offers itself as a low-guilt splurge for consumers. Following a few years of tough budgeting, spending $50 on a family meal doesn’t present the same implications as the purchase of a car for several thousand dollars.
The good news? While restaurant sales activity isn’t a forward indicator, it does confirm our state economy is getting better. Just don’t count on the behavior of eating out to carry over into real estate purchases any time soon. Instead, watch car sales volume, which almost always runs with the urge to buy a home, and of late has been doing much better.
Re: “In Sit-Down Restaurants, an Economic Indicator” from The New York Times