The Bureau of Economic Analysis issued their advance estimate for the first quarter of this year and it was disappointing both in absolute terms and versus the forecasts. GAP rose just 0.7 percent the slowest growth rate in 3 years. Economists were not thrilled with the final reading of the fourth quarter last year which was 2.1 percent. The slow rate of growth in the first quarter was attributed in large part to only a small increase in consumer spending. That in turn was blamed on a decline in auto sales.
What is going on with the economy? It appears that consumers are spooked but there doesn’t seem to be a clear reason why. Inflation appears to be under control. Health insurance is a problem for some but not for most Americans. Employment is strong by most standards. The housing market continues to do well, so much so that there is fear of another housing bubble. Interest rates remain near historic lows. Consumer sentiment continues to run high and, the financial markets are doing well.
Usually when home valuations are up and investments are up, consumers are quite willing to spend.
And while we hear talk almost weekly about a “restaurant recession,” other industries are finding it tough, too. Food manufacturing, package goods companies, and even luxury products sellers — who are supposedly immune to economic downturns — are reporting slow sales. Two recent examples are Procter & Gamble and PepsiCo. Right now it seems that uncertainty is the only constant.
It may be like the old saying: Buckle your seatbelts; we’re in for a bumpy ride.
Economic News This Week
- Initial jobless claims rose by 14,000 to 257,000 for the week ending April 22. The 4-week moving average fell by 500 to 242,250.
- New single family home sales were up sharply in March. The Census Bureau announced new residential sales were 621,000 on an annual seasonally adjusted basis. This is 5.8 percent above the February rate and an increase of 15.6 percent over March 2016. The average sale price was $388,200 and the supply of new homes available for sale represented a 5.2 month’s supply.
- Home prices continue to climb. The S&P CoreLogic Case-Shiller U.S. National Home Price Index was up 5.8 percent in February from February 2016. Some markets have seen dramatic home price increases since the bust period and now are higher than the record boom in 2006. Some observers express concern that some areas may be overpriced and could be overvalued.
- Durable manufactured goods orders rose 0.7 percent in March according to U.S. Census Bureau’s advance report. Durable goods shipments increased 0.2 percent and unfilled orders increased 0.2 percent.
- The Chicago Production Manufacturing Index rose slightly in April increasing 0.6 points to 58.3. (Any reading over 50 indicates increasing activity.) However, the New Orders Index increased by 5.5 points to an almost 3-year high. The Production Index fell 2.2 points to 59.5, as did the Order Backlog Index.
- The University of Michigan Index of Consumer Sentiment “continues to travel the high plateau” as the university puts it. The index rose to 97.0 in the final April reading, virtually the same as the March reading of 96.9. The Current Economic Conditions Index inched down from 113.2 in March to 112.7 in April while the Index of Consumer Expectation rose a bit from 86.5 March to 87.0 in April. The partisan divide regarding economic conditions in the future continues with Democrats extremely pessimistic and Republicans extremely optimistic.
Foodservice News This Week
- The NPD Group sees delivery as a bright spot for foodservice. NPD reports that one-fourth of U.S. consumers have ordered a meal for delivery in the past three months. Delivery now accounts for 1.7 billion foodservice visits annually. Young adults are the heaviest users of delivery representing 56 percent of delivery orders. NPD further states digital orders jumped to 2 billion visits in 2016. This includes in-store pick-up. The report noted that convenience is the No.1 reason to eat out and delivery is the most convenient form of foodservice.
- McDonald’s first quarter financials beat estimates. Big Mac reported global comparable store sales increased 4.0 percent for the quarter ending March 31 despite going against strong comps the first quarter of last year as well as an extra day due to leap year in 2016. All McDonald’s regions showed same-store sales growth, with the important U.S. division up 1.7 percent. The chain attributed the strong U.S. performance to all day breakfast as well as Big Mac and beverage value promotions. Corporate dollar sales fell 3.0 percent in constant currencies due to refranchising. Earnings per share were $1.47 versus $1.25 a year earlier.
- McDonald’s sees Japanese unit turnaround and cancels proposed sale. McDonald’s had announced almost a year ago they were looking to find a buyer for up to a 33 percent stake in the Japanese company. Now McDonald’s said that March same-store sales rose almost 17 percent and they now expect the Japanese to generate $76 million in net income this year.
- Taco Bell announced that “select” locations in Canada will serve alcoholic beverages. The press release only mentioned beer specifically and did not indicate if the addition would require purchasing new equipment.
- Starbucks Roastery In Chicago will be hard to miss. Located on Chicago’s Magnificent Mile strip, the new store will be four stories tall and cover 43,000 square feet. This makes it Starbucks’ largest location, easily surpassing the Shanghai location which occupies 30,000 square feet.
- Corporate Stirrings: Darden Restaurants announced the finalization of the acquisition of Cheddars Scratch Kitchen. The $780 million purchase was financed in part with the proceeds from a $500 million offering of senior notes Buffalo Wild Wings, under fire from the activist investment firm of Marcato, plans to cut $40-$50 million in expenses. The chain will eliminate the position of guest experience captain, schedule employees more carefully, “streamline” field management, and eliminate the waste of condiments and sides. Also, BWW will sell 80 company-owned units to franchises. Bloomin’ Brands announced the sale and refranchising of 45 Outback Steakhouses in Arizona, Colorado, Nevada, & New Mexico to Cerca Trova Restaurants Inc. and the sale and refranchising of 8 Outback Steakhouses and one Carabba’s Italian Grill in Montana, South Dakota, Utah &n Wyoming to Evergreen Restaurant Group LLC.
- Growth Chains: Arby’s signed 28 development agreements in the first quarter that will include opening 86 locations in the U.S. Tropical Smoothie Café will open 6 locations in Atlanta. Blaze Fast Fired Pizza will open 2 restaurants in Wichita. Taco Bell plans to grow from 170 units in Canada to 700. Schoeny’s will open 4 restaurants in Birmingham by 2022. Bojangle’s has signed a development agreement for “multiple locations” in the Washington, D.C., area.
- Comparable Store Sales Reports: Arby’s up 1.6 percent, Bloomin’ Brands (Combined down 0.2 percent, Outback up 1.4 percent, Carabba’s down 3.8 percent, Bonefish Grill down 0.8 percent, and Flemming’s down 2.9 percent), Brinker International (U.S. Chili’s company owned down 2.3 percent, U.S. franchised up 0.3 percent, and Maggiano’s down 1.6 percent), Buffalo Wild Wings (company owned up 0.5 percent and franchised up 0.6 percent), Burger King down 0.1 percent, Chipotle up 17.8 percent, Del Frisco Group (Del Frisco Grille down 0.9 percent, Double Eagle down 0.5 percent and Sullivan’s up 1.1 percent), Domino’s (U.S. system up 10.2 percent, company owned up 14.1 percent, and franchised up 9.8 percent), McDonald’s U.S. up 1.7 percent, Popeye’s down 4.3 percent, Starbucks U.S. up 3.0 percent, and Tim Horton’s down 0.1 percent.
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