Consumers report that they are very enthusiastic about how the economy is doing and where it’s heading. Neilson, the University of Michigan, the Conference Board and the Gallup Poll all confirm Americans are doing great. The Federation of Independent Business says optimism by small business managers is near a record high. The National Association of Home Builders tells us that their members haven’t been this optimistic since the housing boom a decade ago. (See Economic News below for more detail.)
The only problem is there doesn’t seem to be any economic data to back it up. Gross Domestic Product grew at a lackluster 2.1 percent in the fourth quarter of last year. Car and light truck sales have softened. February personal expenditures rose an anemic 0.1 percent. The facts indicate that the recovery from the Great Recession remains the weakest in 50 years.
And some in the foodservice industry now use the dreaded “R Word” to describe restaurant sales performance.
The Wall Street Journal recently ran an article entitled “Sentiment vs. Reality: The Economy Is Telling Two Different Stories.” The article quoted Morgan Stanley economists saying that “soft” sentiment data has surged while “hard” economic data hasn’t budged much. Morgan Stanley states “The divergence is stunning.”
Moreover, almost no one expects economic data to catch up with consumers’ buoyant feelings. Economists polled on GDP growth for the first quarter of this year are predicting an increase of just 1.6 percent, which is lower than the average quarterly growth throughout the current recovery.
Economic News This Week
- Real Gross Domestic Product increased at an annual rate of 2.1 percent in the fourth quarter of last year, according to the third estimate from the Bureau of Economic Analysis. This was a slight increase from 1.9 percent in the second estimate. The fourth quarter GDP was higher than in the first and second but a significant decline from the third quarter.
- Initial jobless claims fell by 3,000 to 258,000 on a seasonally adjusted basis for the week ending March 25. The 4-week moving average dropped 7,750 to 254,250. Jobless claims remain at low levels for yet another week.
- Job openings in January showed little change at 5.6 million, according to the JOLT study. The number of hires were also essentially unchanged at 5.4 million in January. Job separations (quits, layoffs and discharges) were similar to the number of December separations at 5.3 million. The number of quits edged up to 3.2 million. Economists watch the quits rate closely, believing those employees leaving jobs voluntarily indicates confidence on the part of consumers.
- Home prices continue to rise. The S&P CoreLogic Case-Shiller U.S. National Home Price Index gained 5.9 percent in January on an annual basis. This increase was up from a 5.7 percent rise the previous month and marks a 31-month high. The report notes that home prices continue increase faster than wage growth and the supply of homes for sale is low.
- Home builders were more confident in March. The National Association of Builders/Wells Fargo Housing Market Index jumped 6 points to 71. This is the highest reading since June 2005, which was back in the days of the housing boom. The NAHB believes the increase in builder sentiment is due in large part to the current administration’s rescinding or revising the waters of the U.S. rule that impacts building permits.
- Personal income rose 0.4percent in February, which was in line with forecasts. Personal expenditures, however, rose a meager 0.1 percent.
- The Chicago Production Manufacturing Index was “stable” in March. The index rose to 57.7 in March, up from 57.4 in February. The index rose by 7.1 points in February. New Orders Index rose by 1.2 points, which was a 4-month high. The Production Index rose 1.4 points to 61.7, which is a 14-month high. Order Backlogs rose for the third consecutive month but remained below the breakeven level of 50. Employment fell back below the 50 contraction mode (under 50) after rising into expansion in February.
- The Conference Board’s Consumer Confidence Index leaped in March. The Index rose to 125.6 (1985 = 100) from 116.1 in February. This is the highest level since December 2000. Both components of the Index increased sharply. The Present Situation Index rose to 143.1 from 134.4 in February while the Expectations Index rose to 113.8 in March from 103.9 in Februrary
- The University of Michigan Index of Consumer Sentiment remains high. The Index rose to 96.9 in the final March report, up slightly from 96.3 in February. The Index of Current Economic Conditions was 113.2, an increase from 111.5 in February. The Index of Consumer Expectations was identical to February’s at 86.5. The March findings are considered good but a university spokesman pointed out, again, that there is wide difference depending on political affiliation, with Republicans expecting a great economy and Democrats predicting a recession.
Foodservice News This Week
- Rumors prove correct about Panera Bread Company being a takeover Target. The chain’s stock price had jumped as a result of the rumors, although a number of financial commentators mentioned the stock was overpriced. Investment commentator Jim Cramer speculated that Starbucks may be interested while other reports mention Domino’s Pizza and JAB Holdings, owner of Caribou Coffee. In the end, it was JAB Holdings that reached the agreement to acquire Panera Bread in a deal worth approximately $7.5 billion.
- YUM! CEO says automation is coming to foodservice. While noting that online and kiosk ordering has already arrived, Greg Creed thinks that future tech developments in the form of robotics will eventually replace humans when it comes to food preparation and cooking. Creed anticipates that level of technology will be around by the mid to late 2020s.
- Domino’s will introduce delivery robots in Europe. The battery powered six-wheeled vehicles will first operate on sidewalks in Germany and the Netherlands. The first tests will be in areas where Domino’s has a shortage of delivery drivers.
- Add Jack in the Box to the list of restaurants aggressively expanding delivery. Jack in the Box kicked off delivery in San Francisco last fall and now offers the service from more than 230 restaurants in 229 cities. DoorDash is handling the delivery and all menu items are available.
- Dunkin’ Donuts has partnered with Waze to use on-the-go mobile ordering. Waze’s new feature, Order Ahead, submits orders via the Dunkin’ Donuts Mobile App. The feature allows members of the chain’s DD Perks Rewards Program to simplify the ordering process and then bypass the line at the store to pick up their order.
- Buffalo Wild Wings hired a company to refranchise. The Cypress Group will assist in selling off 50 or more of BWW’s company owned units. The move drew criticism from activist investment group Marcato. The private equity group has pushed for refranchising but seems to feel that the chain’s move is too little.
- Corporate Stirrings: Chipotle Mexican Grill was successful in getting a federal judge to undo a class action suit by Chipotle manager trainees in six states who claim they were denied overtime pay. The judge ruled the trainees performed varying duties depending on where they worked and could not show they were eligible for overtime pay. Another suit by hourly workers claiming they were forced to work off the clock has been allowed to proceed by a different court. Darden will move Cheddar’s headquarters to Orlando from the 165-unit chain’s current location in Irving, Texas. Nearly 100 Cheddar employees will move to Darden’s restaurant support center once the acquisition closes in May. Four Foods Group, which describes itself as a restaurant development, investment and management company, has acquired 48 Little Caesars Restaurants in Alabama and Louisiana. Details of the sale were not provided.
- Growth Chains: Cracker Barrel will open its first West Coast location in Oregon with 2 more restaurants planned to open in that state this year. Papa John’s opened in 6 new countries last year — France, Iraq, Israel, Spain, the Netherlands and Tunisia — and will open a location in Morocco soon. Taco John’s will open 20 restaurants in the Chattanooga, Tenn., and Nashville areas. Grimaldi’s Pizza has signed an agreement for 5 restaurants in the United Arab Emirates. The Counter, a full-service create-your-own-burger concept, has operations planned for Mexico City and Tokyo, plus domestic restaurants in Florida, Boston, North Carolina, Texas and Arizona.
- Comparable Store Sales Reports: Darden (all brands up 0.9 percent, Bahama Breeze up 0.5 percent, Capital Grille up 0.9 percent, Edie V’s up 1.7 percent, LongHorn up 0.2 percent, Olive Garden up 1.4 percent, Seasons 52 up 0.8 percent, and Yard House down 1.0 percent), Dave & Buster’s up 3.2 percent, One Hospitality Group (owned STK down 7.0 percent and owned and operated STK down 6.0 percent) and Sonic Drive Ins (system down 7.4 percent, company owned down 8.9 percent, and franchised down 7.3 percent).
For details and same-store sales of other chains, Please Click Here for the Green Sheet.