U.S. restaurant business contracts for first time in six months

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The U.S. restaurant business contracted in May for the first time in six months, as persistently high unemployment discouraged many people from eating out, according to an industry group survey.

The National Restaurant Association’s Performance Index fell to 99.9 last month from 100.9 in April, as same-store sales and customer traffic at many chains softened, the Washington, D.C.-based group said in a July 1 statement.

May’s reading marked the first time since November the performance index was below 100, which indicates contraction, the association said. The index is based on a survey of restaurant operators and reflects both current conditions and expectations for the industry.

“Like the economy as a whole, the restaurant industry’s recovery hit a speed bump in May,” Hudson Riehle, the restaurant association’s senior vice president of research, said in the statement. “However, the overall economic fundamentals of the restaurant industry remain positive, which will likely lead to stronger performances in the months ahead.”

The survey indicated the nation’s consumers are keeping spending in check amid pressures from lackluster hiring, high gasoline prices and a weak real estate market. That’s concerning beef, pork and dairy producers, who rely on restaurants, hotels and other foodservice operations for a large chunk 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 survey, 40 percent of restaurant operators reported same-store sales declines during May compared with the same month in 2010, up from 31 percent who reported declines in April. Also, 39 percent reported same-store sales increases during May, down from 50 percent reporting gains in April.

Restaurant operators “are not as optimistic about future sales growth as they were earlier in the year,” the association said in the statement. They’re also “much less bullish about the direction of the overall economy in the months ahead.”

According to the survey, 24 percent of restaurant operators said they expect economic conditions to improve in six months, down from 46 percent in January and the lowest level in more than two years. 

The weaker readings raises questions over the Restaurant Association’s previous forecasts for growth in the industry overall in 2011. In May, the association said the U.S. restaurant business was poised for its first inflation-adjusted sales growth in four years, citing recent improvement in the job market.

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 a May interview, repeating a previous association forecast. 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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