Published on Tuesday, 12 November 2013
Written by Jerry Stiegler
This week we examine reports from Washington, D.C., on the growth of the economy and the employment picture. We also take a closer look at foodservice employment, Walmart's entry into the c-store market, a dozen chains comparable store sales reports, and much more.
Gross Domestic Product grew by an unexpected 2.8 percent in the third quarter, according to the U.S. Department of Commerce's advance estimate. This is the fastest rate of growth in a year and it exceeds most economists' forecasts, some of which projected as little as 1.5 percent growth.
The unfortunate "but" that tempers the good news is the expansion was driven in large part by a large buildup in business inventories which could be greatly reduced in the fourth quarter. Consumers accounted for a large part of the GDP growth at a rate of 1.5 percent but this was below the 1.8 percent increase in consumer spending in the second quarter. While the housing market remained strong business investments in software, buildings and equipment fell to 4.1 percent from 6.5 percent in the previous quarter.
"Jobs Friday" also brought some positive news with the U.S. Bureau of Labor Statistics (BLS) reporting non-farm payroll employment grew by 204,000 in October with an increase of 212,000 jobs in the private sector partially offset by 8,000 fewer government jobs. The BLS also increased the estimated number of new jobs in August and September.
The October unemployment rate rose slightly to 7.3 percent from 7.2 percent in September. People on temporary layoffs, such as furloughed government workers, increased by 448,000. The total number of unemployed persons stayed relatively constant as did the long-term unemployed, part-time workers who want full-time work, and the number of "discouraged" workers. The labor force participation rate fell as did the employment population rate.
First-time jobless claims fell to 336,000, a decrease of 9,000 for the week ending November 2, while the less volatile 4-week average fell to 348,250, a decrease of 9,250.
Overall, the reports appear positive, showing a minimal impact from last month's partial government shutdown. But questions remain if the economy can repeat October's good news in the months ahead or if the good news will encourage the Federal Reserve to rein in its easy money policy.
Economic News This Week
- Factory orders increased 1.7 percent in September, driven largely by a huge increase in orders for Boeing. Without the transportation segment, factory orders increased only 0.2 percent.
- The Institute for Supply Management's Non-manufacturing (Service) Index climbed to 55.4 in October from 54.4 in September, thanks to growth in 12 of the 18 industries studied.
- Consumer borrowing increased in September but the growth all came from non-revolving credit such as auto and student loans. For the fourth month in a row revolving loans, mostly credit cards, declined.
- Personal income increased 0.5 percent in October while personal spending rose 0.2 percent.
- Daily self-reported spending has been averaging about $88 this year vs. $72 in 2012 according to data release by The Gallup Organization.
- The Affordable Care Act is negatively affecting employment according the National Center for Public Policy Research. The organization states that 363 employers have cut employees' hours to avoid paying for healthcare insurance. Just 75 of these employers were private companies. Most were public institutions like school districts and state universities. Some reports have foodservice operations shrugging off Obamacare while Disney World offers full-time employment to selected part-time employees so they can receive coverage. Other reports have small employers increasing their employees out of pocket expenses such as co-pays. And the Wall Street Journal reports that few Americans have actually signed up for health insurance programs, a fact supported by a recent Gallup finding that only 22 percent of uninsured adults bought insurance or plan to through an internet health exchange.
- Consumers are a lot less confident. The Reuters/University of Michigan Consumer Index preliminary November report tumbled to 72, which is near a 2-year low. Both the current conditions and expectations sub-indices fell. Gallup's U.S. Economic Confidence Index was down 16 points for the month of October, the sharpest 1-month decline the Index has had since it was created in 2008.
Foodservice News This Week
- Foodservice employment increased by 29,300 jobs in October, according to the U.S. Bureau of Labor Statistics. The foodservice industry was responsible for nearly 14 percent of the 212,000 private sector jobs created last month.
- Walmart entered the convenience store business when the big box retailer announced plans to build a store in the firm's home town of Bentonville, Ark. The company says it has no plans for similar stores at this time.
- Restaurant traffic to decline in 2014? That's what a survey from AlixPartners says. A desire to eat healthier, along with competition from supermarkets and c-stores, will cause less dining out. These surveys appear every month or two and are probably accurately reporting consumers' intentions but people's actions may not follow accordingly.
- McDonald's U.S. same-store sales increased just 0.2 percent in October while overall corporate comp sales were up a better than expected 0.5 percent. McD's same-store sales in Europe rose 0.8 percent. It is interesting to note that Wendy's comparable store sales for the quarter ending in September were up more than 3.0 percent. Maybe the hamburger business is a zero sum game where someone being down means some else is up. And while bashing McDonald's is now in vogue, the website Burger Business carried a fascinating guest article by former McDonald's marketing executive and franchisee Barry Klein. He refuted many of the criticisms aimed at the chain, pointing out that McDonald's sales are steady, not flat, and that the number one foodservice operation should not be counted out.
- Chicken prices are down according to Bloomberg News thanks to the biggest ever U.S. corn harvest driving down prices of the feed by almost 50 percent after last year's drought.
- U.S. restaurant chains visited China hoping to enjoy KFC's success. With the International Franchise Association, the Franchise Times, and the U.S. Commercial Service setting up meetings with potential franchisees, franchisers including Wing Zone, CKE, Fuddruckers, and Round Table Pizza toured mid-size Chinese cites.
- Casey's c-store chain experienced 300 percent more rain in the company's last quarter but a Wells Fargo analyst says this is a positive factor in pizza delivery which should aid same store sales.
- Growth Chains: Quaker Steak N Lube has signed deals for seven new restaurants along the Interstate 10 corridor between Florida and Texas. Huddle House has agreements for eight new restaurants in three states. The Pizza Studio has franchised agreements for 20 new locations in San Diego County. Another Broken Egg has a development agreement for 40 new units in Florida. Quizno’s will open 100 new locations in Indonesia over the next 10 years. CST Brands has opened eight new stores in the U.S. and two in Canada in the third quarter of this year. Caribou Coffee and Bruegger’s Bagels will open two co-branded stores in the Twin Cities area. Einstein Bros. Bagels announced the chain has opened 30 non-traditional locations in the last 9 months including colleges, airports, medical centers and hospitals.
- Comparable Store Sales Reports: Arcos Dorados (up 12.6 percent), Bloomin' Brands (blended sales were down 0.3 percent, its Outback concept was down 0.3 percent, Carrabba's was flat, Bonefish Grille declined by 2.7 percent, Flemming's increased by 4.2 percent), Bravo Brio (total sales declined 4.5 percent, by concept, Bravo down 3.7 percent and Brio down 5.1 percent); Carrol's (up 0.4 percent), Fiesta Restaurants (Pollo Tropical up 3.2 percent and Taco Cabana up 1.8 percent), Jamba (system-wide sales declined 3.4 percent, company-owned stores declined 5.5 percent and franchised locations declined 1.3 percent), Noodles & Company (system-wide sales increased 2.1 percent, company-owned stores were up 2.4 percent and franchised locations increased 0.5 percent), NPC International (down 3.6 percent), Papa John's (North American locations were up 1.8 percent, company owned locations increased 5.1percent and franchised locations increased 0.6 percent), Red Robin (up 5.7 percent), Tim Horton's (up 3.0 percent), and Wendy's (company-owned locations were up 3.2 percent and franchised locations were up 3.1 percent).
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