September 2006 E&S Economic Outlook

By Toby Weber, Contributing Editor -- Foodservice Equipment & Supplies, 9/1/2006

RPI Falls in July
The National Restaurant Association’s Restaurant Performance Index fell by 0.9 points in July to 100.9. An RPI reading of more than 100 indicates the index’s eight indicators are generally expanding, while less than 100 signals contraction.

The index is based on a survey of domestic foodservice operators. It consists of two portions: the Expectations Index and the Current Situation Index, both of which fell by 0.9 points in the latest report.

In the Current Situation Index, most of the decline is due to weaker same-store sales results vs. the previous month. Approximately 46 percent of operators said their same-store sales increased in July, down from 53 percent who made the same claim in June. Meanwhile, 36 percent of operators reported a same-store sales decline, up from 29 percent in the previous survey.

The Expectations Index was negatively impacted by operators’ expectations for business conditions in six months. Only 25 percent of those surveyed said they anticipate stronger business conditions in six months vs. the corresponding period a year earlier. That figure represents a 6-percent decline from the previous RPI survey.

Operators’ capital expenditure plans weakened in the latest study, as well, with 56 percent reporting plans to invest in equipment, expansion or remodeling in the next six months. While this figure represents a drop of only 1 percent from the previous survey, it marks the sixth consecutive decline in operator capex plans since February, when 65 percent of those surveyed said they planned to make such an investment.

The complete Restaurant Performance Index for June is online (PDF format). The July RPI should be released at the end of August, and can be found at www.restaurant.org/pressroom at that time.

Durable Goods Orders Fall
New Orders for durable goods fell in July by 2.4 percent vs. June to $212.0 billion, according to the Department of Commerce.

Despite the overall decline, new orders of primary metals increased by 1.2 percent to $20.2 billion. New orders for fabricated metal products, however, dropped by a startling 6.2 percent vs. the previous month to $25.1 billion.

Shipments for primary metal products increased by 1.8 percent to approximately $20 billion, while fabricated metal product shipments fell by 0.7 percent to $24.7 billion.

"Advanced Report on Durable Goods Manufacturers' Shipments, Inventories and Orders" for July 2006 can be accessed by visiting www.economicindicators.gov and clicking on the link for manufacturers’ shipments, orders and inventories. The August report will be available in the same manner starting Sept. 27.

Growth in Manufacturing Sector Slows
The Institute for Supply Management’s Purchasing Managers Index recorded a level of 54.5 in August, down by 0.2 points compared to July.

A PMI reading of more than 50 indicates the manufacturing economy is growing, while less than 50 signals it is contracting. This month’s reading, though above 50 percent, indicates that manufacturing growth slowed in August.

Several of the PMI’s sub indices showed slowing growth in August, as well, including the New Orders, Production, Inventories, and Imports Indices.

On the opposite end of the spectrum, the indices measuring employment, backlog of orders and exports all showed those metrics growing at a faster pace than the previous month.

Check out the full August ISM Report on Business. The September PMI should be released on Oct. 2.

Consumer Confidence Drops in August
The Conference Board’s Consumer Confidence Index declined sharply in August, falling from July’s level of 107.0 to 99.6.

The index is based on a representative sample of 5,000 U.S. households. It consists of two portions, the Present Situation Index and the Expectations Index, both of which fell last month. The Present Situation Index decreased to 123.4 from 134.2. The Expectations Index declined to 83.8 from 88.9 last month.

According to the survey, consumers’ overall assessment of present business conditions fell significantly in August. Those claiming conditions are “good” decreased to 26.1 percent from 27.3 percent, while those claiming conditions are “bad” increased to 16.7 percent from 15.0 percent.

Similarly, consumers’ outlook for the next six months turned more negative in August. Those anticipating business conditions to worsen increased to 12.9 percent from 10.9 percent. Those expecting business conditions to improve edged down to 15.9 percent from 16.1 percent.

The September index will be posted on the same site on Sept. 26.

Unemployment Claims Decline at the End of August
Approximately 316,000 initial unemployment insurance claims were filed during the week that ended Aug. 26, according to the Department of Labor, a decline of about 2,000 from the previous week.

Despite the fall, the latest figures pushed the four-week moving average for initial claim filings up by 1,000 to 317,500.

For the week that ended on Aug. 18, only two states, North Carolina and Wisconsin, reported filing declines of at least 1,000. Both states attributed the declines to fewer layoffs in various industries.

Michigan, Ohio and Virginia all reported at least 1,000 more claims compared to the previous week.

Weekly unemployment claim data is posted every Thursday morning.

Foodservice Sales Post July Increase
Sales at foodservice establishments and drinking places increased by 0.6 percent in July vs. June to $35.5 billion, according to the Department of Commerce.

That figure, while representing a generally healthy increase, lagged the overall growth of sales in all retail segments, which grew by 1.4 percent to $367.9 billion.

Sales at food and beverage stores fared even worse, increasing by 0.3 percent to $45.4 billion.

The full report on July retail and foodservice sales is available on the DOC’s web site. While viewing that site, click on the link “Advanced Monthly Sales for Retail and Foodservice.” The August report can be found at the same site beginning Sept. 14.