Photo: Alan Light, Flickr
About a month ago, we highlighted the fact that the data on consumers “dining out” looked really good, and was a strong piece of evidence that the consumer was feeling better and better.Since dining out is one of the first things that consumers can easily do without when they’re feeling economically nervous, continued strength in this measure is a good sign.
But it turns out there’s more to the story.
In his latest column, the NYT’s Floyd Norris homes in on sales not just at restaurants, but at sit-down restaurants as being a key economic indicator. The government doesn’t break out this data as rapidly as it does general dining-out sales, so it gets missed, but here’s what Norris discovered.
Over the 12 months through January, sales at what the government calls full-service restaurants were 8.7 per cent higher than in the previous 12 months. That was the fastest pace of growth since the late 1990s, when the economy was booming. [Moreover] that rate was much greater than the rate of growth in sales at limited-service restaurants.
Since those numbers became available 20 years ago, that difference has been a reliable indicator of how the economy is going. In tough times, people may still eat out, but they cut back.
So that alone is interesting, but Norris makes a broader point about the broader economy.
Remember, a big theme lately has been the “GDP-less” recovery: The fact that employment growth is picking up, even as GDP growth rates are below the meh level.
We wrote about this trend just last weekend, and noted a few possibilities for the disparity between GDP growth and labour growth. One theory is that productivity is diving, meaning that all else being equal, we need to hire more workers to keep output where it is.
It also stands to reason that if in the quarters following the financial crisis we saw above-average GDP and below-average employment growth, it just makes sense that we could see the opposite now: above-average employment growth, and below-average GDP growth.
Anyway, Norris has another idea: Maybe GDP is just a lot stronger than we realise at the moment. If the sit-down dining growth is any indication, it likely is, just based on historical comparisons.
What’s more, he notes, this wouldn’t be that weird. Prior to the crisis, employment was collapsing, while GDP seemed to be shrinking less severely. It wasn’t until a long time later that we got full revisions and realised that GDP growth was in fact collapsing violently.
So when we get the next big revisions to the data, we might see that there’s no contradiction at all: GDP growth might be significantly faster right now than we realise.