This Week in Foodservice looks at the impact of the federal government shutdown including the lack of government data and the jobs picture as well as fast-casual restaurant growth, more money for equipment distributors to finance inventory and much more.
The budget impasse in Washington didn't take long to make itself felt. Restaurants in Covington, Ky., near a large IRS operation said their lunch traffic fell by as much as 50 percent. No numbers were available but it appears that tourist traffic in Washington, D.C. was off substantially with an accompanying decline in hotel bookings and restaurant sales. Restaurants near national parks and monuments also reported reduced traffic.
Calls to federal agencies were answered by automated messages and there was immediate impact in such areas as loan approvals by the Federal Housing Administration.
And key sources of economic data were cut off, including the famous Friday jobs reports from the Department of Labor on unemployment and hiring, including new jobs in foodservice (more on the jobs picture below). Other reports that were canceled include the Department of Commerce's data on construction spending as well as crop forecasts from the U.S. Department of Agriculture.
Just how important are these reports? The fact is that a lot of organizations, both private and public, up to and including the U.S. Federal Reserve use these statistics to set their policies and determine their current and future activities.
There have been well over a dozen government closings in the last four decades, seemingly without any long-term effects. Gallup points out that even the politicians involved seem to escape any long-term decline in their approval ratings. Of course, as Gallup also notes, the approval scores of congress and the political parties are so low now a further drop is almost meaningless.
Thus, if the funding battle is resolved in a few weeks there probably will not be any serious consequences. However, this is not true in the raising of the debt ceiling, which is a much more critical matter.
Economic News This Week
- Initial jobless claims was one of the reports that the government did release despite the shutdown. For the week ending September 28, claims rose 1,000 to 308,000. The 4-week moving average fell 3,750 to 305,000 the lowest since May 2007. One labor analyst pointed out that these low numbers should support robust employment growth, which is contrary to what is happening.
- Employment numbers from other sources are being scrutinized more carefully now that the government figures are not available. Payroll processor ADP stated that there were 166,000 new jobs created in September, of which 74,000 came from businesses with 50 or fewer employees. ADP also revised their August jobs report downward from176,000 to 159,000. There are still 2 million fewer jobs in the United States than there were in June 2007.
- A jobs guestimate from economists contacted by 24/7 Wall Street of what the Labor Department would have said about September employment was an increase of 142,000 new jobs in September while the unemployment rate would have dropped to 7.2 percent from 7.3 percent in August.
- Gallup's U.S. payroll to population rate, which measures the percentage of those 18 years and older who are employed by an employer for 30 hours a week or more was 43.5 percent in September, down from 43.7 percent in August. This "P2P Rate" has stayed the same or declined slightly for eight out of nine months this year when compared with the same months last year.
- September auto sales declined from August with most car manufacturers reporting lower sales. Exceptions were Chrysler (up 1 percent) and Ford (up 5.8 percent). Because of Labor Day's position on the calendar some sales were pushed into August rather than September.
- Factory orders, one of the Commerce Department indicators that was made available this week, increased just 0.1 percent in September after declining 2.4 percent in August.
- The Institute for Supply Management's Manufacturing Index rose to 56.2. This is a two-year high with employment and shipments up while new orders were down.
- The Chicago Production Manufacturing Index rose to 55.7 in September up from 53 in August, marking 3 straight months of the index increasing. New orders were the highest since February while employment was the only component that was down.
- The Institute for Supply Management's Non-Manufacturing Index, which covers the service sectors, declined significantly in September to 54.4 over 58.6 in August. Since any number over 50 indicates expansion, service businesses are continuing to grow but at a slower rate or, as on observer put it, the results are positive but the decline adds a bit of uncertainty to the future.
- The Gallup U.S. Economic Confidence Index for September dropped to minus 19 from minus 13 in August. This is the lowest the monthly average has been since September 2012. (As we mention from time to time, Gallup created the index in 2008 measuring the difference between Americans who thought the economy was good vs. bad and improving vs. getting better or worse. Since its inception five years ago the Index has never been positive.)
Foodservice News This Week
- Fast-casual sales continue experiencing rapid growth, according to a new Technomic study. Fast-casual sales were up 13 percent in 2012 while the largest fast-casual chains were up even more at 16 percent.
- GE Capital's commercial distribution finance arm announced it plans to expand its inventory financing capabilities, allowing equipment dealers to make larger purchases with extended payment terms in order to grow dealers' sales.
- New Yorkers are eating out more this year based on Zagat's 2014 restaurant survey. Led by younger diners, New York City residents ate out or bought 58 percent of their lunches or dinners. This is up from 49 percent a year ago and significantly over the average U.S. consumer who ate out 47 percent of the time.
- Potbelly Corporation showed people liked the 288-unit chain's stock as much as their sandwiches when the share price rose 120 percent on the day of the company's initial public offering. Potbelly had raised the offering price twice then settled on $14 a share. The stock closed at $30.77.
- A food truck was the solution to a problem for the La Brea Bakery Café in Los Angeles when the company closed their flagship store for expansion and remodeling. The truck, parked behind the existing operation, will serve a limited menu but is open seven days a week.
- Schlotzky's Delis are expanding into convenience stores with five locations now open. The company says this is an opportunity for investors and franchisees to get into Schlotsky's with a lower investment threshold. The chain also offers a co-branded deal with Cinnabon.
- Growth chains: Bennigan's announced a master franchise agreement to open 50 restaurants in India. Denny's has a partnership in Chile that will open 10 locations in the next 15 years. Peet's Coffee and Tea will be opening 100 new stores across the Midwest and on the East Coast over the next 4 years. Checker's has signed an agreement that will bring 3 new units to the NYC area. Chick-fil-A has just opened 2 restaurants in the Twin Cities with 2 more scheduled to open next month. Papa Murphy's plans on opening 40 units in the St. Louis area. Uncle Maddio's Pizza Joint has a franchise agreement for 3 locations in South Florida and now has a total of 150 locations in development.
- Comparable store sales reports: Captain D's (up 3.2 percent) and Good Times Burgers (up18.2 percent).
For details and same-store sales reports of other chains, please click here for the new Green Sheet.