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July Restaurant Index Hard to Swallow

"Cautious optimisim" still on the menu

| BY Donald Liebenson

The restaurant sector got served Friday with some unappetizing news: The National Restaurant Association’s (NRA) Restaurant Performance Index fell in July to 100.2, down 1.1 percent from the previous month and the lowest reading in nine months.

The RPI is a monthly composite index that “tracks the health of and outlook for the U.S. restaurant industry.” It is comprised of two components: the Current Situation Index and the Expectations Index. The former is based on four “recent-period” restaurant sector indicators, including same -store sales, customer traffic, labor and capital expenditures. The latter is based on four “forward-looking” sector indicators, including same-store sales, staffing, and capital expenditures.

The index measures the health of the restaurant sector in relation to a reading of 100. Expansion or contraction is indicated by the distance from this steady-state level. The July RPI was the ninth consecutive month that the RPI stood above 100.

While restaurant operators reported positive same-store sales for the 14th consecutive month, only 22 percent said they expect economic conditions to improve in the next six months, the lowest level in 10 months, the NRA said in its release.

The Current Situation Index dipped 1.7 percent in July to 99.8, the first time in nine months this component fell below 100. The Expectations Index dipped 0.6 percent from June to 100.7. This was the 11th consecutive month that this component stood above 100, but it was also the weakest level in nine months.

The restaurant sector, as measured by the NRA, has reported positive same-store sales for 14 consecutive months, but recent months have seen softer results. Fifty-three percent of restaurant operators reported increased same-store sales between July 2011 and July 2012, down from 61 percent who reported positive sales in June. In comparison, the NRA notes, 36 percent reported lower same-store sales in July, up from 24 percent the previous month.

Restaurant operators remain “cautiously optimistic,” the NRA said in its report, although their outlook, too, has been softer in recent months.

What does the health of the restaurant sector mean to the economy at large? Full-service restaurant sales are “a reliable indicator of how the economy is going,” Frank Lloyd posited in The New York Times. “In tough times, people may still eat out, but they cut back.”

Eating out accounts for 5.3 percent of a household’s annual expenses, 24/7 Wall Street determined in a website post last year. In 2009, the average household spent $2,619 on food away from home (which includes full-service restaurants, fast food, take-out, delivery, vending machines and food carts). This is up from an average of $1,762 in 1989, 24/7 Wall Street determined.

About the Author

Donald Liebenson

Donald Liebenson writes news and features for Millionaire Corner. He has been published in the Chicago Tribune, The Chicago Sun-Times, The Los Angeles Times, Fiscal Times, Entertainment Weekly, Huffington Post, and other outlets. He has also served as a marketing writer for Chicago-based Questar Entertainment and distributor Baker & Taylor.  

A graduate of the University of Southern California, he is married with a college-age son. He also writes extensively about entertainment.