Restaurants Show Growing Economy

Food and Drink Sales Reflect on Overall Economic Strength

Restaurants Show Growing Economy
May 25, 2016

Your brain and your heart may tell you that America's economic growth is sluggish at best, but your stomach is telling you something different altogether — at least, that is the case as measured by how much we spend eating out. Restaurants have been defying recent stock market trends and outperforming other sectors in reports from the Bureau of Labor Statistics.

The Great Recession took a toll on all discretionary spending, and restaurants were no exception. Average per capita spending on food services sank to $1,650 in 2009, but has since recovered to almost $1,900 in 2015, surpassing the pre-recession peak.

A slowly growing economy, the beginnings of higher wage pressures, and a windfall from lower gas prices has put more money in consumer's pockets. Spending is cautiously increasing in some areas, but the restaurant industry has seen larger benefits. Since 2014, the sales numbers from food service and drinking establishments increased by almost 8%, over twice the growth rate of total retail sales.

This statistic has come as no surprise to the National Restaurant Association, who recently predicted that 2016 would be a record year for the industry. Sales are expected to reach $782.7 billion for the year and employment within the sector is expected to reach 14.4 million. Food and drink establishments still represent the second-largest private sector employer in the American economy, and given the current growth rates, the industry could employ more workers than the entire manufacturing sector in approximately three years.

Does this trend in restaurant sales show underlying strength in the economy and bode well for the future, or is it just an anomaly caused by extra spending money acquired during economic recovery? Restaurant sales tend to track measures of consumer sentiment, so they represent a reasonably good snapshot of ground-level economic improvement.

Consumer confidence tends to be fairly volatile but has been on a reasonably solid growth path since a trough in 2009 — just like the economy. Improvements in wage and employment trends periodically feed consumer sentiment and give consumers greater confidence to dine out more often. The cycle continues, driven by positive momentum. Eventually that positive spending momentum should spill over into bigger-ticket items and create a more tangible impact on the market.

Restaurant sales may be less able to predict economic growth in the future. According to some analysts, we are eating out more often as a function of our busy lifestyles than as an enjoyable indulgence. Any parent of school-aged children can tell you how simultaneously managing children, careers, and other interests leaves very little time to cook.

As millennials advance in their lives and careers, they may also be affecting restaurant sales in conflicting ways. According to economist, Jeremy Cohn of Moody's Analytics, they are waiting later to marry and have children — the percentage of America's population under twenty is at 25% and falling — but they appear to prefer dining out as a matter of lifestyle. It's a concept that fits in well with the "Uber economy."

Restaurant sales may settle into a baseline that is more reliable and less dependent on fluctuating income. Dining out does not necessarily mean an expensive meal, but the rise of fast casual restaurants like Panera Bread and Chipotle may be keeping the relative sales dollars high.

Will food and drink sales continue to be a good predictor of the overall economy? We suggest that it will be, until proven otherwise. Anything that can predict the economy within reason these days is a metric to watch closely. All these metrics are making us hungry!


Photo ©iStock.com/Veremeev

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Beverly | 05.25.16 @ 19:15
Interesting, I would have thought eating out would have slacked off as well. But, it seems people are working longer hours so eating out makes sense.
Kamie | 05.25.16 @ 19:16
I can see how they can predict some with the economy with how many people may go out to eat, but at the same time you have people who are just lazy and rather not cook at home so they rather be in debt that go to the grocery store.
Alec | 05.25.16 @ 19:16
My husband and I are in our mid 20s. He recently graduated and got a new job so we have been able to afford to go out to eat on a couple of occasions. Different types of restaurants give us the ability to pick and choose within our budget where to eat, so that's a plus.
Carla Truett | 05.25.16 @ 19:16
We treat ourselves to a restaurant meal about once a month now. They are pretty pricey in our area.
Nancy | 05.25.16 @ 19:17
Hopefully, this is a good indicator of the strength of our economy. With the long hours that people work to make ends meet, it might just be easier to eat out.
Steffanie | 05.25.16 @ 19:17
This is good news hopefully! I know we are eating out more often.
trish | 05.25.16 @ 19:17
I know from our standpoint, going out to eat was the first thing we cut down/out of the budget. Slowly it has trickled back in, especially due to sports consuming our every minute!
Sarah | 05.25.16 @ 19:17
I dunno... I know people who "can't afford" to eat out but do it anyways just because that's what they want. I'm not sure it's a great signpost to look at.
Elaine | 05.25.16 @ 19:19
I am guilty on the always eating out. Most are just too busy and have no time to actually prepare food.
Jonathan | 05.25.16 @ 19:19
Restaurants arent always good economic indicators though.
$commenter.renderDisplayableName() | 12.04.16 @ 18:40
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