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CME: Restaurant Index Contracts in June

07 August 2013

US - US - The National Restaurant Association’s Restaurant Performance Index (RPI) fell slightly in June but remained clearly above the 100 level which, by construction, demarks expansion and contraction of the restaurant sector, write Steve Meyer and Len Steiner.

The chart at right shows the monthly RPI plus its two components indexes that deal with the Current Situation and Expectations of restaurant operators.

The June index stood at 101.3, 0.5 points lower than in May and 0.1 points lower than one year ago, say Mr Meyer and Mr Steiner.

June, though, marks the fourth straight month of growth after the index spent most of the winter in negative territory. The entire decline in the RPI was attributable to a decline in the Current Situation component which fell by 0.9 points to 100.7 in June.

The Expectations component remained unchanged in June at 102.0. Each of the primary component indexes of the RPI are themselves comprised of four sub-components. We believe it is important to note that all of the sub-component indexes remained at 100 or better in June.

That is the second straight month that every item has been in the “expansion” range and May was the first month of such ratings since June 2007.

This is the first time that consecutive months have seen 100+ ratings for every sub-component since June and July of 2005. It appears to us that even though conditions in the sector are not as robust as they were, for instance, in 2004 and 2005, they are on a relatively solid, broad footing at the moment. With that said, we still have some concern over the June results for Customer Traffic (101.8 — down 3.2 points from May’s 104.0) and Same-Store Sales (100.4 — down 1.3 points from May’s 101.7). The percentage of operators reporting higher year-on-year, samestore sales fell to 52 per cent in June from 63 per cent in May. The percentage reporting lower sales grew from 23 per cent in May to 34 per cent in June.

Though sales expectations remain strong (46 per cent of operators still expect them to grow over the next 6 months), fewer actual customer numbers a nd lower actual sales provides a substantial dose of reality in a market that is still being impacted by substantial unemployment and, perhaps more important, underemployment.

And underemployment is getting more and more attention. Most notable in that attention is the U-6 rate which includes workers who are looking for work and cannot find it (the more familiar U3 unemployment rate) plus “ all marginally attached workers and total employed part time for economic reasons.”

It is our understanding that the “marginally attached” workers include those who have become discouraged and stopped looking for work, technically leaving the “labor force” in doing so. “Part time for economic reasons” refers to the decisions of employers in offering part-time jobs, not to decisions of workers in accepting part-time jobs. Add them up and you have the “normal” unemployed represented by June’s 7.4 per cent unemployment rate plus people who have quit looking plus people who can only find parttime work.

And both the number of these people and their share of the total U.S. labor pool are both still quite high and declining at a very slow rate. The U-6 rate in June was 14.0 per cent. That is 0.3 per cent lower than in May an 0.9 per cent lower than one year ago but it still says that one in
eight U.S. workers are either without work or are working less than fulltime. U-6 peaked out at 17.1 per cent in 5 months from October 2009 through April 2010.

As can be seen above, it has decline at a rather uneven pace since then, falling by 18 per cent over the past 3-plus years. The U-3 rate peaked at 10 per cent in October 2009 so it’s decline to 7.4 per cent last month is an improvement of 26 per cent.

Why the stickiness of this broader “underemployment” measure? While one easy scapegoat is the federal health insurance overhaul, Dr. Bob Dieli of cautions against laying
blame just yet. While it is very logical that policy that exempts parttime workers from health insurance coverage is impacting hiring decisions, he contends that the data are insufficient in detail to conclusively blame “Obamacare.” His knowledge of the unemployment data definitely trumps our neophyte suspicions.

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