U.S. restaurant index falls to 11-month low amid souring economic outlook

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An index tracking U.S. restaurant operators’ sales and expectations fell to an 11-month low in July, as the nation’s debt woes contributed to a souring outlook on the economy, the industry’s primary trade association said.

The National Restaurant Association’s Performance Index fell to 99.7 last month, down from 100.6 in June and the lowest level since August 2010, the Washington, D.C.-based group said in an Aug. 31 statement: http://bit.ly/p67Mdn.

Customer traffic and same-store sales weakened in July from levels a year earlier, while readings of labor and capital spending also softened, the association said.

“Restaurant operators’ outlook for the economy took a pessimistic turn” in July, Hudson Riehle, the restaurant association’s senior vice president of research, said in the statement. The protracted negotiations over the federal debt ceiling and Standard & Poor’s downgrade to its U.S. credit rating added “an additional layer of uncertainty in an already fragile economic recovery,” he said.

“However, if the economy can avoid additional negative shocks in the months ahead, the overall fundamentals continue to point toward growth in the second half of the year,” Riehle added.

Based on a survey of restaurant operators, the Performance Index reflects both current conditions and expectations for the industry for the next six months. A reading below 100 indicates contraction, while a number above 100 indicates expansion.

The restaurant business has come under pressure in recent months as high unemployment, expensive gasoline and a weak housing market discouraged people from eating out. That’s a concern for beef, pork and dairy producers, who depend on restaurants, hotels and other foodservice operations for a large portion of demand.

Almost 8 billion pounds of pork was sold through restaurants and other foodservice channels last year, accounting for about 41 percent of total U.S. pork consumption, according to the National Pork Board. Foodservice accounts for about two-fifths of U.S. cheese consumption, according to industry estimates.

According to the restaurant association’s survey, 48 percent of restaurant operators reported same-store sales increases during July compared with the same month in 2010, down from 51 percent who reported increases in June. Also, 34 percent reported same-store sales declines during July, up from 31 percent reporting gains in June.

In current dollar terms, industrywide sales were projected to reach a record $604.2 billion in 2011, up 3.6 percent from 2010, Riehle said in May. When accounting for inflation, restaurant sales are expected to rise 1.1 percent this year, the first increase since 2007. Sales fell an average of 1.3 percent the previous three years.



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