Although the employment reports remained generally positive in recent months, restaurant operators’ economic negativity has been rising, according to the NRA’s Chief Economist Bruce Grindy. His Economist’s Notebook commentary and analysis appears regularly on Restaurant.org and Restaurant TrendMapper.
The national labor market continued to expand at a moderate pace in September. The economy added a net 156,000 jobs in September on a seasonally-adjusted basis, according to data released today by the Bureau of Labor Statistics.
Overall in the third quarter, payrolls increased by an average of 192,000 jobs each month. This is right on par with the average monthly job growth since the employment recovery began in March 2010, which illustrates just how steady the recovery has been.
The unemployment rate ticked up to 5.0 percent in September, after sitting at 4.9 percent during the previous three months. However, this was largely due to a surge of 444,000 people entering the labor force, which is a positive sign for the economy.
Average hourly earnings for all private sector workers were up 2.6 percent between the third quarters of 2015 and 2016. This represented the strongest four-quarter growth since mid-2009, though it still remains relatively modest in historical terms.
While the 30,000-foot view remains generally positive, those with boots on the ground are not entirely convinced that the current economic trajectory will continue in the months ahead.
In the National Restaurant Association’s September 2016 Tracking Survey, only 17 percent of restaurant operators said they expect economic conditions to improve in six months, while 29 percent said they think conditions will worsen. The other 52 percent expect economic conditions in six months to be about the same as they are now.
The ‘conditions-will-worsen’ response option to this survey question feeds into the Association’s Economic Negativity Index, which is illustrated in the chart below. Restaurant operators’ economic negativity trended higher in recent months, and September’s reading of 29 percent represented the highest level since the fiscal cliff crisis in 2012.
Despite the rising level of concern about the economy, it has not yet reached the level that indicates a recession is on the horizon. Dating back to its inception in 2002, this question in the NRA’s monthly survey of operators has been a reliable leading indicator of an economic downturn. However, history tells us that we would need to see negative economic sentiment of at least 35 percent to make the call on a recession.
As the chart below shows, restaurant operators’ economic negativity jumped in 2007 prior to the Great Recession, with more than 40 percent of operators saying they expected economic conditions to worsen. Negative sentiment remained elevated until early-2009, when restaurant operators started to anticipate improving conditions.
Other than that sustained period, there were only three other times since 2002 where restaurant operators’ economic negativity even rose above 30 percent: the fiscal cliff crisis in 2012; the debt ceiling crisis in 2011; and Hurricane Katrina in 2005. Each of those were only brief spikes until the situation stabilized.
Based on their daily contact with customers, restaurant operators are often the first to notice any changes in consumer behavior or economic conditions. While operators’ current economic sentiment does not suggest that a recession is imminent, it has risen to a level that requires close monitoring in the months ahead.