Restaurant Performance Deteriorates Further in June

| July 31, 2010

The National Restaurant Association reported that their Restaurant Performance Index (RPI) declined for a third straight month to 99.5 in June, moving further into negative territory as shown on the following graph from Calculated Risk.

Any reading below 100 denotes contraction in the industry, and the index has been moving sharply lower after peaking in March. This reversal aligns with the recent deterioration in economic data, but is it indicative of a “soft patch” in a self-sustaining economic recovery or a likely return to economic contraction? The Consumer Metrics Institute Growth Index, which tracks consumer spending activity on major discretionary purchases in real time, has been in a persistent downtrend well into negative territory since the beginning of the year, supporting the recession thesis.

Consumption accounts for about 70% of the US economy, and current consumer data trends suggest that a return to contraction is becoming more likely during the second half of 2010. It will be important to monitor the development of these downtrends over the next several months.

Category: Commentary, Market Update

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