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When the official headline economic indicators don’t work, savvy investors turn to the unconventional economic indicators.In his latest Breakfast With Dave note, David Rosenberg visits a signal being sent by the restaurant sector:
EATING OUT IS OUT
Our hedge fund desk has always told me that among the most reliable cyclical indicators for the American consumers is the restaurant sector. Traffic is slowing down precipitously and the companies are issuing negative guidance.
I took a look at the monthly details from the latest PCE data and saw that in nominal dollars, consumer spending on eating out sagged 0.4% in October and has contracted now in three of the past four months. The YoY trend peaked at +5.7% in July and has since slowed to +4.4% which is the softest pace in eight months (the three-month trend which a year ago was running at 7.5% at an annual rate is now close to stall-speed of 2%). As a sign that families are becoming more cautious in their spending and eating habits, grocery shopping is up in two of the past three months and at double the trend (at4%) of the restaurant industry.
ECRI’s Lakshman Achuthan has argued that the economy went into recession in mid-2012. This evidence seems to support that thesis.