Weekly news worth another look: National Restaurant Association data shows a slight improvement in industry performance in July; foodservice hiring shot up in August; One Wall Street analyst says naysayers are missing the entire picture; The NPD Group reports restaurant traffic flat and the union targeting McDonald’s has its own labor problems.

 The National Restaurant Association’s Restaurant Performance Index edged up 0.3 percent in July. Both the Current Situation Index and the Expectations Index remained in growth mode with readings of more than 100. While not exactly a month to cheer about, this iteration of the index was probably more closely watched than usual given concerns about the “restaurant recession” that was bandied about over the past month.

The association termed sales performance for July “uneven,” which seemed appropriate given that 44 percent of operators reported increased same-store sales and 45 percent reported a decrease in same-store sales. Customer traffic was less positive, with just 33 percent of operators reporting an increase compared to 46 percent who said traffic was down.

On a happier note, operators continue to invest in their businesses with 64 percent indicating they had made a capital investment for equipment, remodeling and/or expansion in the previous 3 months. This was up from 55 percent who said the same in June.

As for the future, 65 percent of the operators plan to make a capital investment in the next 6 months, up significantly from 57 percent who reported capital investment plans in June.

While this was certainly not a report to cause excitement, the data indicates no reason for panic, either.

Economic News This Week

• Private sector employment increased by 177,000 in August, per ADP’s National Employment Report. The payroll processing company reported that the service-providing sector grew by 183,000 while the goods-providing sector lost 6,000 jobs. Small businesses (less than 50 employees) added 63,000 jobs; medium businesses (50-499 employees) added 44,000 jobs; and  large businesses (+500 employees) added 70,000 employees.
• Initial jobless claims rose by 2,000 for a total of 263,000 in the week ending August 27, according to the U.S. Department of Labor. The 4-week moving average fell by 2,000 for a total of 263,000 which demonstrates there has been very little volatility in jobless claims.
• The U.S. added 151,000 new jobs in August. While considered to be mediocre, these levels are not disastrous. Private employment rose 126,000, with various government organizations adding another 25,000. Unemployment stayed the same as in July at 4.9 percent according to the U.S. Bureau of Labor Statistics.
• Sales of car and light trucks fell 4.2 percent in August with most manufacturers experiencing sales declines. This was despite the car companies spending more on sales promotion and other discounts since 2009. One car executive described the market as “tougher and more difficult” even though sales were strong by historical standards.
• Labor productivity decreased at a 0.6 percent annual rate during the second quarter of 2016. Unit labor costs increased 4.3 percent in the second quarter, reflecting a 3.7 percent increase in hourly compensation and a 0.6 percent decline in productivity.
• The Institute for Supply Management’s Production Index retreated into negative territory in August with the index falling 3.2 points from July to 49.4. (Any number more than 50 shows contraction in the market.) Production dropped 5.8 points to 49.6, Order Backlog dropped 2.5 points to 45.5, and the Employment Index fell 1.1 points to 48.3. Of the 18 manufacturing industries ISM studies, only 6 reported growth in August.
• New orders for manufactured goods rose 1.9 percent in July according to the U.S. Census Bureau’s full report for the month. Shipments fell 0.2 percent and unfilled orders decreased 0.1 percent. New orders for manufactured durable goods (those designed to last 3 years or longer) rose 4.4 percent, while shipments of manufactured durable goods increased 0.1 percent and unfilled orders fell 0.1 percent.  
• The Chicago Business Barometer fell 4.3 points in August but managed to stay in the expansion area at 51.5. (Any number above 50 indicates expansion.) Order Backlogs tumbled 14.5 points to 41.7 which is the lowest since April. Production and New Orders both declined from July but stayed in positive territory. The Employment Index increased.
• Private construction spending was virtually flat in July vs. June on a seasonally adjusted annual rate, but increased 1.5 percent over July of 2015. Construction spending in the first months of this year is up 5.6 percent compared to the same period last year. Residential construction spending increased 0.3 percent from June.

• The Conference Board Consumer Confidence Index rose 4.4 percentage points in August to 101.1. This is the highest the index has been in almost a year. The Present Situation Index rose to 123, up from 118.8 in July. The Expectations Index improved as well, rising to 86.4 from 82 in July. Survey respondents indicated that they feel good about overall business conditions as well as the labor market.

Foodservice News This Week

• Foodservice hiring was strong in August. The Bureau of Labor Statistics reports an increase of 34,000 jobs, with 27 percent coming from the private sector. And more than 22 percent of all new jobs were from foodservice operators. Foodservice has added 312,000 jobs so far this year, per the report.

• Is a restaurant recession coming? No, says one analyst in Forbes.com story. The discussion of a “restaurant recession” has been batted around since last month when a market analyst advanced the idea that the foodservice industry is headed for a significant turndown. Now another stock brokerage has begun coverage of 15 restaurant chains stocks. Lynne Collier of Canaccord Genuity rated four stocks as “Buy” – Darden, Dave & Busters, Panera and Sonic. The other 11 were ranked as “Hold.” Ms. Collier believes that the negative reports do not take into consideration factors that are helping the industry, such as low gasoline prices and the growth of mobile technology.
• Restaurant traffic remained flat in the second quarter, per The NPD Group. These results are similar to the first quarter of the year. Quick-serve restaurants, which saw a 1.0 percent increase in visits in the first quarter, were also flat in the second quarter. The fast-casual segment, which has been the star for several years, had visits drop by 3.0 percent in the second quarter as Chipotle lost customers. Without Chipotle, fast-causal traffic was up 2.0 percent. Compared to the second quarter of 2015, lunch traffic declined by 4.0 percent and dinner traffic declined by 1.0 percent, while morning meal traffic increased by 1.0 percent.
• The Union targeting McDonald’s has a labor problem. The Service Employees International Union (SEIU) has put a major effort behind trying to unionize McDonald’s and pushing for a $15 minimum wage. The union has spent millions of its members’ dues in part on hiring people to protest outside restaurants and other businesses. None are unionized and at least some don’t make $15 an hour. But recently these employees tried to unionize, only to have the spokesperson turned away from the SEIU’s headquarters by security. The SEIU’s position is that the protesters don’t work for them but for the local committees -- despite the fact that the union pays most of these people directly. The position is termed “hilarious” by an editorial in the Wall Street Journal since the union rejects McDonald’s claim that the employees work for the franchisees, not the corporation.
• Are Starbucks and McDonald’s subject to the same EU charges as Apple? The European Union has charged that Apple underpaid taxes by $14.5 billion due to the company’s arrangement with Ireland. Speculation has arisen that other companies, including McDonald’s and Starbucks, could face similar allegations. Some observers think that the firms will fight the charges and the matter could take years to settle.
• Pilot Flying J Travel Centers promotes food, free Wifi and … bathrooms in a TV, print, and web-based ad campaign. An Adweek story talked about the brand’s decision, which was prompted by the chain’s research that found restroom cleanliness is the deciding factor in where to stop for 70 percent of drivers. Pilot Flying J is in the process of spending $100 million upgrading their bathrooms in their 650 locations. 
• Corporate Stirrings: YUM! Brands has a deal to sell part of its China operation to a prominent Chinese financial group once the China business is spun off later this year. Real Mex Restaurants, owner of Chevy’s, El Torito, Acapulco, Pink Taco and others, has announced their plan is to effectively double the size of Real Mex though one or more “strategic acquisitions” in the next year. Alimentation Couche-Tard, the c-store giant based in Canada, has agreed to purchase 53 sites in Louisiana from American General Investments LLC and American General Financial Group LLC. The stores currently operate under the Cracker Barrel name but will be changed to the Circle K brand after the deal is complete. Circle K is Couche-Tard’s U.S. division of the Gulf Coast Region. The parties involved agreed not to reveal the purchase price.
• Growth Chains: Charlie Graingers has signed a deal that will bring their franchisee commitment to 115 restaurants. J. Gumbo has signed agreements for a restaurant in Michigan, New Mexico, North Carolina, Ohio, and Pennsylvania. Dickey’s Barbeque Pit will open 4 restaurants in Michigan. The Mohegan Tribe, which currently operates 4  Smashburger Restaurants in New England, will open a 5^th location with 20 more in the planning stage. The Sheetz c-store chain has opened 3 new locations in Ohio, Pennsylvania and Virginia in the past 2 weeks. Boston Restaurant & Sports Bar has a franchise development agreement for a minimum of 2 restaurants in El Paso.
• Comparable Store Sales Reports: Bob Evans down 4.3 percent.

 For details and same-store sales of other chains, check out the Green Sheet.