The National Restaurant Association's Restaurant Performance Index fell to its lowest level since October, indicating weakness in the restaurant sector. The Current Situation component was the primary drag, with customer traffic and labor below 100 for the first times since last year. Operators' expectations for the next 6 months also declined, with the lowest sales growth expectation since December. However, the University of Michigan's Consumer Sentiment Index gained over 2 points in August after a previous dip. The author believes it will be difficult to increase demand for meat and other products with stagnant incomes and consumers still expecting unfavorable economic conditions through early 2013.

1. Vol. 10, No. 172 September 5, 2012
Consumer-level demand for meat and poultry has been a NRA CURRENT SITUATION, EXPECTATIONS &
mixed bag this year so it is no surprise that some recent demand
news is mixed as well. The National Restaurant Association’s (NRA)
COMPOSITE RESTAURANT PERFORMANCE
Restaurant Performance Index (RPI) fell to its lowest level since Octo- 106.0
INDECES
ber, perhaps explaining some of the weakness in beef and pork values Current Situation Component
in recent weeks. But the University of Michigan’s Consumer Sentiment Expectations Component
104.0
Index gains just over 2 points in August after a two-month dip that had Restaurant Performance Index
taken it to its lowest level of the year. Let’s look at some details.
The July RPI reported on Friday was 100.2 — still barely 102.0
above 100 level that demarks expansion and contraction of the
restaurant sector. The NRA attributed the drop to softer customer 100.0
traffic and a dampened outlook among restaurant owners. Recall that
the RPI is a composite of indexes of the Current Situation and Expecta-
tions. The 100.2 for July was 1.1 points lower than the June index and 98.0
the lowest since the composite hit 100 back in October.
The Current Situation component was the primary drag in July, 96.0
falling to 99.8 from 101.5 in June. Same-store sales remained on the
positive side at 101.6, marking its 14th straight month of growth. But
94.0
the other three components of the Current Situation Index were all be- J-03 J-04 J-05 J-06 J-07 J-08 J-09 J-10 J-11 J-12
low the 100 level with Customer Traffic and Labor dipping below 100 for Source: National Restaurant Association
the first times since October 2011 and February 2012, respectively.
Only 53% of operators reported higher same-store sales in
July versus one year ago. That is the lowest percentage of sales
UNEMPLOYMENT VS. CONSUMER
growth reports since November 2011. In addition, only 35% of opera- SENTIMENT
tors reported higher customer traffic in July. That figure is down from UM Consumer Sentiment Unemployment Rate
50% in June. 120 11.0
The index of operators’ Expectations remained well above the
100 level at 100.7 but that figure is down 0.6 points from June. All four 110 10.0
components of the Expectations Index (same-store sales, labor, busi-
t100 9.0
ness conditions and capital expenditures) declined in July though the n
e e
m90 t
first three of those remained on the positive side at 102.7, 100.2 and i
t 8.0 a
R
n t
100.0, respectively. e
S n
r 80 7.0 e
Expectations of performance over the next 6 months declined e m
y
m o
in July with only 42% (versus 50% in June) expecting higher sales vol- u
s 70 6.0
l
p
ume. That figure is the lowest since 41% of operators expected sales n m
o e
C n
growth back in December. It appears that a major shaping factor for M60 5.0 U
these expectations is operators’ view of future general economic condi- U
tions. Only 22% expect better conditions in six months, the exact per- 50 4.0
centage that expects worse conditions. Those figures compare to 28% 40 3.0
and 21% in July and 36% and 19% in June. The July figures are far 0
8
2
8
4
8
6
8
8
8
0
9
2
9
4
9
6
9
8
9
0
0
2
0
4
0
6
0
8
0
0
1
2
1
9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0
and away the most negative of this year. 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2
The Thompson Reuters-University of Michigan sentiment
index provides a bit more positive news for consumer markets. year ahead, and the majority expected falling inflation-adjusted
August’s 74.3 is 2 points higher than the index in July and 18.5 points incomes.”
higher than one year ago when the figure plunged to 55.8. That plunge We think it will be difficult to build demand for meat, poultry, eggs and
occurred during the debt ceiling debate that engendered so much confi- milk with incomes stagnant or falling, especially considering the kinds of
dence in our citizens. The sarcasm there is completely intended and price increases we are going to see for these products. The majority of
deserved by Congress!. August’s improvement was driven by a 6 point consumers still believe economic conditions will remain unfavorable
gain in the Current Conditions Index while the Index of Consumer Ex- until the start of 2013. And there was no change in consumers’ already
pectations fell by 0.5 points to 65.1. We felt one comment in particular negative views of current economic policies.
was important: Even a slight uptick in the sentiment index is carrying a lot of
“The majority of consumers anticipated no wage gains in the negative baggage, it seems.
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