Published on Tuesday, 04 February 2014
Written by Jerry Stiegler
This week we look at where the U.S. economy stands one month into the year, review a soft December as reported by the National Restaurant Association, cover Sysco's financial performance, and a whole lot more.
The U.S. Commerce Department's advance estimate for gross domestic product in the fourth quarter was 3.2 percent, a level economists consider to be good in this economy. Drivers of the anticipated growth were increased consumer spending, a jump in exports and more business investment. The Commerce Department expressed concern about the housing market. The projected results represent a drop in GDP from 4.1 in the third quarter of 2013 but a nice gain from the 1.9 percent rate recorded for all of 2013.
While the economy appears to be moving in the right direction, a number of signs continue to evoke a sense of caution among some in the financial community. For example, auto sales may be slowing and while the housing market certainly improved in 2013 it remains nowhere near its pre-recession levels. Last year 428,000 new homes were sold, a 16 percent increase compared to 2012, but far below the 1.2 million homes that economists consider "average" or "normal." The world economy seems to be stumbling due in part to China and continued softness in Europe. Also, various consumer sentiment studies continue to show a lack of confidence in the economy. The jobs picture remains the real wild card. The U.S. has yet to return to pre-recession employment levels and recent data does not seem to indicate any major improvement soon.
In short, more than four years after the recession ended, the U.S. economy seems to be bumping along. Why this recovery is so weak will probably be hotly debated for years but this is the environment we have to live with. We can only hope that 2014 will bring a marked improvement.
Economic News This Week
- The Institute for Supply Management's Manufacturing Index fell significantly in January to 51.3 from 56.5 in December. New orders declined sharply as did hiring intentions.
- January auto sales fell to an annual rate of 15.24 million, marking a 3-month low. Ford sales fell 7 percent from December while GM sales dropped 12 percent. Chrysler sales bucked the trend, rising 8 percent.
- First-time jobless claims reached 348,000, an increase of 19,000, for the week ending January 25. Last week it appeared that initial claims were definitely trending lower but then there was a significant jump up. The 4-week moving average for claims was up just 750 for a total of 333,000. The increase could be just a statistical glitch, somehow weather related, or some residue from seasonal layoffs.
- Personal income was flat in December but personal spending rose 0.4 percent. The Bureau of Labor Statistics revised November spending to being up 0.6 percent. Obviously, increased spending with flat income is not a sustainable situation.
- Durable goods orders fell a nasty 4.3 percent in December according to the U.S. Department of Commerce. The biggest hit came from declines in auto and commercial aircraft orders. While durable goods orders are generally somewhat erratic and commercial aircraft orders especially so, durable goods orders have fallen in four of the last six months. Even without planes and cars, durable goods orders still were down 1.6 percent. The only good news was that core capital goods — those used to manufacture other goods — fell just 0.2 percent.
- The Chicago Production Manufacturing Index retreated to 59.6 in January from 60.8 in December. Since any number above 50 indicates expansion, manufacturing in the Chicago region remains strong. New orders were up slightly but the employment index fell.
- Global consumer confidence was essentially flat in 2013, rising just one point over 2012 according to Nielsen. Domestic consumer confidence registered at 94, which was average for the world as a whole. Indonesians were the most confident (124) and Portuguese the least confident (44).
- The Conference Board reports consumer confidence climbed to 80.7 in January from 78.1 in December. The Board spokesman said it appears that the economic recovery is back on track. In contrast, consumer confidence as determined by the Reuters/University of Michigan study slid in January to 81.2 from 82.5 in December. Both the sub-indices for the current situation and future expectations declined.
Foodservice News This Week
- The National Restaurant Association's Restaurant Performance Index fell to 100.5 in December, a decline of 0.6 percent. Softer same-store sales and slower customer traffic forced a 1.7 decline in the Current Situation Index, which registered a score of 99.5. Any rating less than 100 indicates industry contraction. The NRA did not speculate on the reason for the decline but weather may have been a factor. Looking ahead, operators are somewhat positive with the Expectations Index up 0.4 percent to 101.5. Operators continue to invest in their businesses, with the RPI reporting that 52 percent of those responding made a capital expenditure for equipment, remodeling and/or expansion in the preceding 3 months and 61 percent expect to make a capital expenditure in the next 6 months.
- Sysco reported a 4.1 percent increase in sales for its quarter ending Dec. 28, 2013. The company said its food cost inflation was 0.8 percent, and that sales from acquisitions increased volume by 1.9 percent while foreign currency exchange rates decreased sales by 0.6 percent. Factoring all this in would seem to indicate that real sales growth was approximately 2 percent. Case volume, including SYGMA was up 2.7 percent, excluding acquisitions. Sysco's net earnings for the quarter dropped 4.8 percent.
- McDonald's was back in the news again when Scott Hume, publisher of Burger Business, provided a detailed look at how McD's overloaded its menu. In trying to meet critics' call for more healthy items, give consumers new flavors, and offer budget-priced items due to economic conditions, the chain's menu grew 75 percent in the last decade. The current menu has 121 permanent items. It is no wonder that McDonald's top management acknowledges "the restaurants didn't have time to breathe."
- McDonald's was also featured in Time article comparing Big Mac's performance to Wendy's. One major difference between the two burger giants, according to the story, is that Wendy's' new offerings were notably successful vs. many McDonald's failures.
- A minimum wage increase at the federal level remains under discussion, but also on the table is an increase in federal minimum wage of $2.13 for tipped employees. The New York Times points out this really only applies in 19 states where the federal rule applies. If the employees' tips don't add up to the current federal minimum of $7.25 an hour, the employer must add in the difference. In 24 states the subminimum wage is higher. In seven states tipped employees base pay must be at least the state minimum wage.
- Sandleman & Associates announced the winners of its 2013 Quick Serve Restaurant Awards for Excellence. The top three in rank order are Café Rio, Chick-fil-A and In-N-Out Burger.
- Manitowoc reported a 10 percent increase in foodservice equipment sales for its fourth fiscal quarter of 2013.
- Darden's decision to cut back its expansion efforts resulted in the layoff of about 20 employees in the company's home office in Orlando.
- Peet's Coffee & Tea opened a "First of Its Kind" flagship store in San Francisco. The store features restored fir ceiling, concrete walls and recycled steel beams in an 80-year-old art deco building as well as oak cabinets, marble counter tops and energy efficient lighting, heating and cooling systems.
- Growth Chains: Burger 21 has signed agreements with 8 new franchisees for a total of 14 new restaurants. Buffalo Wild Wings now has more than 1,000 restaurants and operates in 49 states, Canada and Mexico. Smoothie King will open 25 new stores in Atlanta over the next 5 years. Pizza Rustica, with 15 units in the U.S., has signed a master franchise agreement for Mexico.
- Comparable Store Sales Reports: Chipotle Mexican Grill (up 9.3 percent), Good Times Burgers (up 14.1 percent), and YUM! (blended sales declined 2 percent, KFC down 5 percent, Pizza Hut down 4 percent and Taco Bell up 1 percent).
For details and same store sales reports of other chains, please click here for the Green Sheet.
Supplier Financial Data this week includes Manitowoc, Standex International, and Sysco. Please click here for Foodservice Industry Equipment Supplier Financial Data.
- A Caring Climate
Ask most any foodservice professional about the most potent tool at th...
- A Caring Culture
A bout ten years ago our company, Taziki’s Mediterranean Café — ...