New hiring stumbles badly in May. The NRA reported restaurants turned in a good performance in April as operators continue to invest. Burger 21 introduced a new restaurant with a full-service bar. McDonald’s Australia opened a new restaurant to test different types of French fries. Starbucks is introducing a line of cold beverages that will be the foundation for a new “cold bar.” These stories and a whole lot more This Week In Foodservice.
U.S. employment increased by just 38,000 in May, the smallest increase in five years. Private employment rose by just 25,000 as 13,000 of the new jobs were with government entities. The forecast for job growth was way off the mark with economists and other labor experts looking for jobs to increase by about 150,000. It was calculated that without the Verizon strike, the number of jobs would have been double, but that would still have produced an exceedingly weak number. The jobless rate declined to 4.7, percent but this was primarily the result of half a million people dropping out of the labor force. Further, the number of jobs added in March and April was scaled back by 59,000.
As far as foodservice goes, the Bureau of Labor Statistics placed hiring at 22,000, which means the industry was responsible for better than half of all the hiring. As far as private sector jobs are concerned, foodservice accounted for almost nine out of 10 new employees.
Economic News This Week
- Personal consumption expenditures rose 1.0 percent in April, the largest increase in almost seven years. Personal income increased 0.4 percent in April, according to the Bureau of Economic Analysis.
- New orders for manufactured goods rose 1.9 percent, according to the Census Bureau’s full report for April. Shipments for the month increased 0.5 percent while unfilled orders rose 0.6 percent. New orders for manufactured durable goods (those that last three years or more) increased 3.4 percent with durable goods shipments up 0.5 percent and unfilled orders up 0.6 percent.
- The Institute For Supply Management’s Manufacturing Report edged up in May by 0.5 percentage points to 51.3. (Any figure over 50 indicates expanding activity.) May is the third consecutive month that manufacturing activity grew. The New Orders Index for May was 55.7 percent, a decline of 0.1 percent from April. The Production Index also fell in May, dropping 1.6 percentage points to 52.6. The Employment Index was steady in May at 49.2. Of the 18 manufacturing industries studied by the Institute, 12 reported growth in May.
- The Institute For Supply Management’s Non-Manufacturing Index declined 2.8 percentage points in May to 52.9, indicating growth continues but at a slower rate than in April. The New Orders Index fell to 54.2 percent from 59.9 percent in April. The Employment Index decreased 3.3 percentage points to 49.7, moving this index into a contraction mode. Of the 18 service industries studied by the Institute, 14 reported growth, which includes the Accommodations & Foodservice segment, which ranked second overall in rate of growth.
- Car and light truck sales fell 6.0 percent in May with most major manufacturers seeing their sales decline. However, the decline was mostly related to having two fewer selling days in the month. Nonetheless, there is speculation that automobile sales are slowing. Marketing incentives are increasing, sales to fleet customers (which usually earn lower profits for cars manufacturers) are rising and forecasters see that matching the record sales figures in 2015 may be unattainable.
- The May Chicago Business Barometer fell into contraction mode as the index dropped 1.1 points to 49.3 from 50.4 in April. Any reading less than 50 means business is contracting. New orders, production, order backlogs, and employment all fell below 50.
- Housing prices continue to advance. According to the S&P/Case-Shiller national home price index, U.S. housing prices are now within 4.0 percent of the all-time high hit in 2006. According to Case-Shiller, the housing market hit bottom in 2012 with prices down 30 percent from the 2006 high. After substantial volatility since then, prices have been rising at around 5.0 percent. While a positive factor for the overall economy, higher home prices make it more difficult for buyers, particularly consumers entering the housing market for the first time.
- Construction spending fell 1.8 percent In April over March, according to the U.S. Census Bureau. But, construction spending rose 4.5 percent over April 2015. Private construction spending dropped 1.5 percent below March spending and April residential construction spending fell 1.5 percent from March.
- ADP’s National Employment Report found the U.S. private sector added 173,000 new jobs in May, with small employers (those with less than 50 employees) leading the way with 76,000 new hires.
- Initial jobless claims were steady for the week ending May 28 with Department of Labor reporting that claims were down 1,000 from the previous week to 267,000. The four-week moving average dropped 1,750 to 276,750. Claims continue to stay under 300,000, matching a run that last occurred in 1973.
- The Conference Board Consumer Confidence Index slipped in May falling 92.6 after reading 94.7 in April. The Present Situation Index decreased from 117.1 in April to 112.9 and the Expectations Index dropped slightly from 79.7 in April to 79.0 in May.
Foodservice News This Week
- The National Restaurant Association’s Restaurant Performance Index bounced back in April. After tumbling 1.4 percent in March, the Index rose 0.9 percent to 100.7, which pushed the index back into expansion territory. The Index was driven up by a 12 percentage point gain in same-store sales over April 2015 while 52 percent of operators reported increased traffic improved in April, double the 26 percent who reported traffic had increased in March. Overall, the Current Situation component of the Index rose 1.9 percent to 102.1. But, operators were not excited about the future with the Expectations Index declining 0.2 percent to 101. Regardless, operators continue to spend, with 64 percent of the operators reported they had made a capital expenditure for equipment, remodeling and/or expansion in the previous three months. This was up from 59 percent who said they had spent major money in March. As far as future investments, 58 percent said they planned a major investment in the next six months, virtually tied with the 59 percent who said so in March and up slightly from 56 percent in February.
- Burger 21 unveiled its first freestanding restaurant with a full-service bar. The new restaurant is located in Ocala, Florida. Burger 21 currently has 22 locations in 8 states and has 20 more locations under development.
- McDonald’s opened a unique restaurant in Australia. There were no hamburgers, beverages, etc. on the menu. Only fries were offered but there were seven varieties of those. The concept was just a way of testing new French fry products and the store closed after a few days. http://fortune.com/2016/06/01/mcdonalds-fries/
- Starbucks announced a new lineup of cold beverages that will become the foundation for a new “cold bar” of coffee and expresso products. Starbucks expects the cold coffee market to double in the next three years.
- Wendy’s will offer some of their menu items in the newly acquired first kitchen chain in Japan. Wendy’s burgers and chicken sandwiches will be served along with First Kitchen’s menu items including pasta. The restaurants will be renamed Wendy’s First Kitchen.
- Corporate Stirrings: McDonald’s is negotiating for space to relocate their headquarters to downtown Chicago. It is not clear if the burger giant will abandon all of the offices they now lease in Oak Brook. McDonald’s is offering buyout packages to employees as part of a program to cut $500 million in general and administrative costs by the end of 2017. Ruby Tuesday, Inc. announced the company has completed the sale of the eight corporately owned Lime Fresh Mexican Grill restaurants to Rubio’s Restaurants Inc. for $6 million. The restaurants will be rebranded as Rubio’s Coastal Grill. The Lime Fresh Mexican Grill brand has been sold to EverFresh Endeavors. The six franchised Lime Fresh Grill restaurants will remain open and continue to be operated by their franchisees.
- Growth Chains: Krispy Kreme is making a comeback in Canada with 50 stores planned for 2 provinces. Papa John’s will open 100 restaurants in Madrid, Spain, and the surrounding area. Freshii will open 6 locations in the Chicago area this year. PizzaRev will open 4 restaurants in the Memphis area this year. 7-Eleven’s new CEO wants to add to the 8,000 stores the company has in the U.S. but did not give a specific number. Boston Market has signed an agreement with a partner firm in the Middle East that will open 25 to 30 restaurants over the next several years.
- Comparable Store Sales Reports: Cracker Barrel up 23.3 percent. Krispy Kreme up 0.7 percent and Zoe’s Kitchen up 8.1 percent.
For details and same-store sales of other chains, please click here for the Green Sheet.