December’s warm weather provided a breath of fresh air for casual dinnerhouse chains, according to weekly Knapp-Track data. Estimated comparable-restaurant sales at dinnerhouse chains rose 0.8 percent in December, compared with a 2.4-percent gain a year earlier—the fifth highest month in 2005. Estimated comparable-restaurant guest counts fell 1.2 percent in December 2006, compared with 1-percent decline December 2005.
Three out of five weeks in December 2006 had positive comparable-restaurant sales results, while the remaining two were negative. Of the five weeks, four had negative guest counts and one was positive. The spread between the best week of December and the worst week was12.3 percentage points, the best of which was the fourth week and the worst was the last. The spread is unusually high, reflecting the shift in Christmas and New Year’s to a Monday from a Sunday.
The estimated comparable-restaurant sales increase of 0.8 percent for dinnerhouses in December was surpassed by the weighted average same-store retail industry performance of 3.3 percent, as measured by the Bear Stearns retail analysts. From April 2003 through December 2006 Bear Stearns’ retail same-store results have outperformed the casual-dining sector, with the exceptions of November 2004, January 2005, April 2005, May 2005, January 2006 and March 2006.
Value propositions for the majority of concepts will continue to be very important as inflation, energy cost increases, education costs, and medical and drug cost increases put substantial pressure on households earning under $50,000.
The basic economy is slowing. The first quarter gross domestic product was 5.6 percent, the latest revised second quarter GDP growth was significantly lower at 2.6 percent, and the third quarter was only1.6 percent GDP growth rate. The fourth quarter is expected to show a bump from the third quarter.
The manufacturing index, as measured by the Institute for Supply Management, was 51.4 in December 2006, up 1.9 index points from 49.5 in November 2006. An index above 50.0 indicates an expansion of manufacturing activity. The basic good news in manufacturing is that export orders are still expanding, with a December index number of 54.3. Export orders have expanded for 49 months.
The Non-Manufacturing Business Activity Index of the Institute for Supply Management fell 1.8 index points to 57.1 in December 2006 from 58.9 in November. Services have been expanding since March 2003, a consecutive increase of 45 months.
The good news is that from December 2005 through December 2006, the number of payroll jobs increased 1,838,000, or 1.37 percent. The core increase in jobs helped move the economy ahead. It also is worth noting that while the payroll employment numbers increased by 167,000 in December, the household survey data showed an increase of 303,000 jobs and an increase of 23,000 in the number of unemployed workers.
Gasoline prices on Aug. 4 were $3 per gallon. At this point prices started to fall precipitously to $2.20 the week of Nov. 6, the lowest price in the first round of reductions. Gasoline prices began to increase slowly at first, but by the end of November, gasoline prices were up 4.6 cents. Gasoline prices on Jan. 15, 2007, hit $2.22, down 9.1 cents from a year ago, a 3.9-percent decrease.
The silver lining in the recent comparable-sales decline for dinnerhouses is that fundamental demand remains strong, and when more disposable income becomes available to the under-$70,000 income group, they will return. Wages for hourly workers started showing real income gains starting in August, but more time is needed for households to be on this positive path before they change their budgets.
Final comparable-restaurant sales for November 2006 fell 1.6 percent. November 2006 comparable-restaurant guest counts declined 3.6 percent, compared with a decline of 0.7 percent in November 2005. Year-to-date comparable sales in November fell 0.2 percent compared with 2.4 percent the year earlier. Year-to-date comparable guest counts in November 2006 declined 2.9 percent, compared with 0.5 percent for November 2005.
Year-to-date all-store sales through November 2006 rose 6.2 percent, compared with an increase of 8.1 percent for November 2005. Year-to-date all-store guest counts through November 2006 increased 3.6 percent, compared with 6.3 percent for November 2005.
The Consumer Confidence Index in December 2006 rose by3.7 index points to 109.0. The December index is only 5.2 index points above December 2005. The Present Situation component increased 4.5 points to 129.9 index points, which is 9.2 points above December 2005. The Expectations Index—measuring how people think the economy will perform in June 2007—rose 3.2 points to 95.1 index points. This is a minuscule increase of 2.5 index points from December 2005. Expectations in December 2005 registered 28.1 index points below the Present Situation. By December 2006, Present Situation exceeded Expectations by a whopping 34.8 index points. Detailed December 2006 data reveals that Consumer Confidence was better in four regions and worse in five regions from November 2006 levels. The strongest region was West South Central at 128.3 points, followed by Mountain, 125.8; South Atlantic, 122.5; Pacific, 121.7; West North Central, 108.1; East South Central, 106.0; New England, 98.9; Middle Atlantic, 88.9; and East North Central, 77.1.
The unemployment rate in December 2006 was 4.5 percent, unchanged from November. The unemployment rate has been between 4.5 percent and 5.5 percent in each month since July 2004. Seasonally adjusted hourly earnings were up 8 cents in December 2006 to $17.04. Seasonally adjusted hourly earnings rose 4.2 percent from December 2005.
In November, two of 11 Knapp-Track regions—the Pacific Northwest and Texas—reported positive comparable-restaurant sales gains. Nine regions had negative comparable-restaurant sales results. One region—West North Central—was unchanged. The spread between the high and low regions for comparable-restaurant sales in November 2006 was 3.9 percentage points, compared with the 3.7 points of October 2006.
The best-performing region was Pacific Northwest followed by Texas, Middle Atlantic, a tie between Mountain and South Atlantic, West North Central, and New England. The worst-performing region was Florida followed by East and part West South Central, California, and East North Central. Year to date, the highest region for comparable-sales results was Pacific Northwest, and the lowest region was New England. The spread between the two regions was 3.8 percentage points.
