Restaurant operators more optimistic about economy

WASHINGTON The National Restaurant Association's restaurant performance index rose for the third consecutive month in March, as the measure of operators’ outlook for the economy over the next six months hits its highest level in more than a year.

For the first time in 18 months, a higher proportion of operators surveyed by the NRA said they expect the economy to improve in six months, as compared to the percent who said they expect economic conditions to worsen.

 

Thirty percent of operators surveyed by the NRA said they expect economic conditions to get better in six months, up from 22 percent who reported similarly in February. Just 21 percent of operators surveyed said they expect economic conditions to further deteriorate in six months, down sharply from the 36 percent who reported similarly last month, according to the NRA’s report, which was released Thursday.

 

However, because of the current economic environment, which most operators said still included negative same-store sales, the NRA’s overall restaurant performance index stood at 97.7 in March — up 0.2 percent from February and up 1.3 percent since January, but still below 100, which signals industry contraction. The index, which asks operators about same-store sales, traffic, labor and capital expenditures, is pegged to a value of 100, meaning values above 100 indicate restaurant industry expansion, while index values below 100 represent industry retrenchment.

 

“Although the [restaurant performance index] remained below 100 for the 17th consecutive month É there are clear signs of improvement,” said Hudson Riehle, the NRA’s senior vice president of research and information services. “Restaurant operators reported a positive six-month economic outlook for the first time in 18 months, and capital spending plans rose to a nine-month high.”

 

Forty-four percent of restaurant operators told the NRA that they plan to make a capital expenditure for equipment, brand expansion or restaurant remodeling in the next six months, the highest level since July 2008. With the U.S. recession hitting its stride and the credit markets beginning to freeze late last year, many restaurateurs have been unable or unwilling to secure growth capital.

 

Operators remain somewhat uncertain about sales growth in the coming months, the NRA said. Thirty percent of operators expect to post higher sales in six months, when compared to the same time frame a year ago. That result is up from 25 percent who reported similarly in the February survey. Thirty-eight percent of operators expect their sales volume in six months to be lower than a year ago, down slightly from the 41 percent who reported the same last month.

 

Improved U.S. consumer confidence ratings could be providing operators with reason for more optimism. The Conference Board Consumer Confidence Index, which had posted a slight increase in March, improved considerably in April, according to the nonprofit group’s statement on Wednesday. The index now stands at 39.2, up from 26.9 in March. The index, like the NRA restaurant performance index, is pegged to 100. The consumer confidence survey is based on a representative sample of 5,000 U.S. households.

“Consumer confidence rose in April to its highest reading in 2009, driven primarily by a significant improvement in the short-term outlook,” Lynn Franco, director of The Conference Board consumer research center, said in a statement. “The sharp increase in the Expectations Index suggests that consumers believe the economy is nearing a bottom, however, this index still remains well below levels associated with strong economic growth.”

The number of respondents who said they anticipate business conditions to worsen over the next six months declined to 25.3 percent from 37.8 percent in the prior month, while those expecting conditions to improve increased to 15.6 percent in April from 9.6 percent in March.

An April consumer study from RBC Capital Markets showed that when the economy does improve, 44 percent of the respondents said they would spend more money on dining out and everyday entertainment, second only to 48 percent of the respondents who said they would spend more on travel.

“The stabilization [and] improvement in confidence and restaurant-spending intentions support the notion we’re nearing an inflection point in consumer spending,” said RBC restaurant securities analyst Larry Miller. “We are seeing an improvement in spending plans over the last several months after a year of declining spending intentions.”

Contact Sarah E. Lockyer at [email protected] [3].