U.S. retail sales declined 0.5% in February, according to the Census Bureau’s advance sales report for the month. This is in sharp contrast to 0.3% rise most forecasters anticipated for February. Sales increased 4.3% in February 2020 compared to the same month in 2019. The sales increase in January from December was revised up to +0.6% from +0.3%. In the first 2 months of this year total retail sales grew 6.5% compared to the same period in 2019.

Foodservice and drinking place sales fell 0.5% from January but were up 5.2% in February 2020 vs. the same time frame in 2019. The reported sales increase of 1.2% for January over December was revised down to +0.8%. In the first 2 months of 2020 foodservice and drinking place sales are up 8.5% over the same timeframe in 2019.

The difference between the forecast and the report is likely the forecast was done before the seriousness of the COVID-19 pandemic was apparent to forecasters. The question now is not if the employment picture is going to get worse. The question is how much worse.

There are a few factors to consider when looking at the data. The advance sales numbers are based on a small sample and are subject to revision. The study includes restaurants and bars only. Not surveyed are hotels, resorts, clubs, retailers, employee feeding, healthcare, education and military feeding.

Finally, the Census Bureau adjusts some but not all of the sales data for seasonal variations, holidays and weekends but there is no adjustment for menu price changes.

Economic News This Week

• Initial-jobless claims increased 70,000 for a total of 281,000 for the week ending March 14. This represents the highest number of claims since Sept. 2, 2017, according to the U.S. Department of Labor, and is related to layoffs resulting from the COVID-19 virus pandemic.
• Privately owned housing starts declined 1.5% from January but increased 13.8% from February 2019. Single-family housing starts were up 6.7% in February over January. Building permits issued in February for privately owned housing were down 5.5% from January but up 13.8% from February 2019.
• Existing home sales grew 6.5% in February to a seasonally adjusted annual rate of 5.77 million. The increase followed a slight sales decrease in January. A spokesperson for the National Association of Realtors expects the coronavirus to slow traffic and said it is difficult to predict the effect the pandemic will have on the existing housing market.
• The New York Federal Reserve’s Empire State Manufacturing Survey tumbled 34 points for a reading of -21.5. This is the lowest the index has been since 2009 and the largest decline in the survey’s history. (Any reading of less than zero means declining activity.) The New Orders Index was -9.3, a 31.4-point decline from February. The Shipments Index was -1.7, a 20.6-point decline from February. The Unfilled Orders Index stayed in positive territory at 1.4 but was a 3.1-point decline from February. Both employment indicators fell for the month. The Number of Employees Index dropped to -1.5 points, an 8.1-point decline from February. The Average Employee Work Week fell to -9.6.
• The Philadelphia Federal Reserve’s March Manufacturing Business Outlook Survey weakened significantly, falling to -12.7 from 36.7 in February. The New Orders Index fell from to -15.5 from 33.6. The Shipments Index stayed in positive territory but just barely, at 0.2. The Unfilled Orders Index dropped to -7.4.
• The U.S. Department of Labor’s Job Openings & Labor Turnover Study (JOLTS) reported job openings rose to 7 million on the last business day in January. This was an increase of 411,000. Over the course of the month, hires and separations changed little at 5.8 million and 5.6 million respectively. The number of quits changed little, too.
• The Federal Reserve Reported a 0.6% increase in February industrial production. Manufacturing output inched up .0.1%. Mining output fell 1.5% while utilities jumped 7.1%. Capacity utilization increased 0.4% point in February for a final reading of 77%, a rate that is 2.8 percentage points below its long run (1972-2019) average.

Foodservice News This Week

• YUM! China sees early signs of a recovery. During the height of the crisis YUM! China had closed more than a third of its locations but now has 95% of its stores open on a full- or part-time basis. The company said traffic is recovering slowly but is still well below pre-outbreak levels.
• How has the world’s largest restaurant company dealt with coronavirus crisis? McDonald’s has indicated that it cannot estimate the negative impact the pandemic will have on the company’s financial performance because the situation differs by country. In the U.S., for example, restaurant dining rooms are now mainly off limits, with most stores staying open with takeout and delivery service. There have been some reports that McDonald’s is considering deferring franchisees’ rental payments until the situation improves.
• The National Restaurant Association asked the Federal government for a $145 billion recovery fund for foodservice operators and employees. The NRA contends restaurant sales will decline by $225 million, which will result in the loss of 5 million to 7 million jobs.
• Shake Shack has joined the host of restaurant companies that have switched to a “to go” format due to the coronavirus. Like many other publicly traded companies in the foodservice sector, Shake Shack also said its previous financial guidance no longer applies, and new information will be released later this year.
• Subway will cut in half its franchisees’ royalty payments for the next four weeks. In addition, the company will give the franchisees rent abatement, reduction and deferral. Subway has been struggling for years with declining sales and failing franchises.
• Domino’s Pizza plans to hire 10,000 workers. The pizza chain is short of workers, particularly delivery drivers, and expects the demand for prepared food delivery will increase significantly with restaurant dining rooms closed due the coronavirus outbreak.
• Sysco has $2 billion in cash to deal with coronavirus. The broadline foodservice distributor tapped $1.5 billion from its credit line. Sysco also said it is reducing expenses and adjusting inventory.
• Corporate Stirrings: Stockholders of The Habit Restaurants, parent of The Habit Burger Grill Chain, have approved the purchase of the burger company by YUM! Brand The purchase price was approximately $375 million.
• Comparable Store Sales: Bad Daddy Hamburgers is down 3.4%, CEC Entertainment is up 2.6% and Good Times Burgers is up 5.8%.

For details and same store sales of other chains, please click here for the most recent Green Sheet.