People are spending less at restaurants -- and it's ominous news for the economy

The restaurant industry is providing some ominous insight into how Americans are feeling about the economy.

Restaurant sales are virtually flat, and they’re expected to remain weak for the rest of the year, according to The NPD Group, an industry research firm.

Weak growth in the restaurant industry is a warning sign for the entire economy, Nomura analyst Mark Kalinowski told Business Insider.

People need to eat, and when they pull back on restaurant spending, it’s a clear sign that they aren’t feeling confident about the economy.

“The whole restaurant industry in aggregate is pretty lacklustre,” Kalinowski said. “It’s not impossible for things to get better, but it does look like the odds are against a rebound.”

Restaurant owners have told Kalinowski that one of the main concerns on customers’ minds right now is the presidential election.

“People spend more when they feel confident about who the president is and the direction he or she is leading the country,” Kalinowski said.

But consumers are feeling uncertain about both presidential candidates, and that probably won’t change — no matter who is elected, he said.
“Restaurant owners … hear a lot about how customers are worried about politics, and they don’t really care for either presidential candidate,” Kalinowski said. “I think Americans’ feelings about those candidates are probably going to be pretty similar on election day to their feelings today.”

The spending pullback in the restaurant industry is forcing many chains to offer steep discounts, which is great for consumers but will end up hurting those companies’ profits.

McDonald’s, Wendy’s, KFC, Burger King, and Chipotle are among the restaurants battling for customers with new combo-meal promotions and free food offers.

The deals seem to be working. While overall traffic to fast-food restaurants was flat, deal traffic increased 3% in the first quarter, according to NPD Group. Promotions accounted for more than 25% of fast-food restaurants’ sales in the quarter.

The industry will likely need to maintain this level of promotional activity to keep customers coming back.

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