The Restaurant Canary

We’ve all heard about the proverbial canary in the coal mine.  In the days before air quality monitoring technology was developed, canaries were put into the mine shafts because they were especially sensitive to dust and gas in the air.  If you were a coal miner and you noticed that the canary wasn’t chirping any more, you knew it was time to grab your pick and hurry back up to the surface.

101815-cheese-foto4Is the restaurant sector the canary for the modern American economy?  Some economists think so.  They reach the logical inference — one that I’ve seen substantiated by personal experience in the past — that people are more likely to eat out when they’ve got cash on hand, and less likely to eat out when they know they’ve got to tighten their belts.  Going out to eat is one of the first “luxury” expenditures to hit the cutting room floor when times get lean because people can save money by making their own food and eating at home.

If restaurants are, in fact, a leading economic indicator, the canary may be indicating that tough times are ahead for the American economy.  Restaurant and bar sales have fallen in three of the last six months, and analysts have downgraded the stocks in the chain restaurants that are staples of the strip malls found at every crossroads in America — places like Chipotle, Panera Bread, and Cheesecake Factory.  One analyst says that the performance of the restaurant sector looks remarkably like what it was in 2000 and again in 2007, right before the last recessions hit.  Analysts also are noting that, in addition to declining consumer spending, restaurants are facing business and profitability challenges due to changes in overtime regulations and increases in the minimum wage.

The U.S. economy is so sprawling and multi-faceted, it’s hard to pick one area as the true canary.  But if the restaurant sector is the right choice, it may be time for the American consumer to start heading for the open air.

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