Although the employment reports have remained generally positive in recent months, restaurant operators’ economic negativity has been rising, according to National Restaurant Assn. (NRA) chief economist Bruce Grindy.
The national labor market continued to expand at a moderate pace in September, Grindy noted. In fact, data released Oct. 7 by the Bureau of Labor Statistics showed that the economy added a net 156,000 jobs in September on a seasonally adjusted basis.
Payrolls increased overall in the third quarter 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 Grindy said illustrates just how steady the recovery has been.
The unemployment rate ticked up to 5.0% in September, after sitting at 4.9% 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 rose 2.6% between the third quarters of 2015 and 2016 and represented the strongest four-quarter growth since mid-2009, although it still remains relatively modest in historical terms, Grindy noted.
“While the 30,000 ft. 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,” he said.
In NRA’s September 2016 "Tracking Survey," only 17% of restaurant operators said they expect economic conditions to improve in six months, while 29% said they think conditions will worsen. The other 52% 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 (Figure). Restaurant operators’ economic negativity trended higher in recent months, and September’s reading of 29% represented the highest level since the fiscal cliff crisis in 2012.
Despite the rising level of concern about the economy, the index has not yet reached the level that indicates that a recession is on the horizon, Grindy explained.
Dating back to its inception in 2002, the question in NRA’s monthly survey of operators has been a reliable leading indicator of an economic downturn. However, Grindy said history shows that negative economic sentiment would need to be at least 35% to make the call on a recession.
Restaurant operators’ economic negativity jumped in 2007 prior to the Great Recession, with more than 40% 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 have been only three other times since 2002 when restaurant operators’ economic negativity even rose above 30%: 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, Grindy noted.“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,” he said.