Do US Restaurant Sales Signal an Economic Slowdown?

When Americans feel economic pressure, one of the first expenses they cut from their budgets is takeout and dining out. This is traditionally considered one of the most reliable early warning signs of an economic downturn. However, current data suggests that people haven't significantly reduced this type of spending, especially high-income earners. In a turbulent year marked by the potential return of Trump to the White House, a trade war considered the worst since the Great Depression, and the latest federal government shutdown, this presents a positive sign for the US economy. Government data shows that US bar and restaurant sales grew by 6.5% in the 12 months ending in August, compared to 4.3% in the previous year. Americans also spent considerable amounts on dining out in the spring and summer seasons of this year. "Despite facing numerous headwinds, the restaurant industry has shown remarkable resilience," said Chad Moutray, chief economist at the National Restaurant Association. "The good news is that I don't see signs of a recession – consumers are still spending."

What's Driving Restaurant Sales?

So, what's keeping restaurants booming? Firstly, the US economy is still growing, which keeps layoffs and unemployment rates unexpectedly low. When sales are stable and skilled labor is already scarce, businesses have little reason to lay off employees. Economists point out that when Americans feel secure in their jobs, they tend to be more willing to spend. Moreover, American income gains are currently outpacing inflation. Additionally, the record-breaking stock market boom is injecting a strong impetus into consumer spending, especially for high-income households. "The recent strong performance of the stock market has been an important driver," said Michael Pearce, Deputy Chief US Economist at Oxford Economics. These trends are also reflected in restaurant booking data. Online reservation platform OpenTable reported that reservations last week were up 12% from the same period last year. Most of the restaurants that this platform partners with are high-end establishments targeting high-income earners. Meanwhile, fast-food and limited-service restaurants targeting middle and lower-income earners have achieved sales growth by introducing new promotional offers that appeal to price-sensitive consumers. Take Domino's Pizza (stock ticker DPZ) as an example. This national pizza chain saw improved sales this spring after launching new value deals, such as a $9.99 pizza. "Brands that convey 'value for money' well are the winners right now," said Moutray.

Changing Spending Habits: The Hidden Concerns in the Restaurant Industry

But this doesn't mean that the restaurant industry is all sunshine and roses. Restaurants have been struggling this year with rising ingredient costs like beef, labor shortages, and increasingly discerning consumer demands. Restaurant operators say consumers have developed new habits to control their spending: choosing smaller portion sizes, sharing entrees, and even ordering from the kids' menu. The Federal Reserve mentioned in its latest economic survey report that in the Atlanta region, "diners continue to save money by skipping desserts and alcoholic beverages." This thrifty mindset reduces the willingness of restaurants and food professionals to hire more employees. The restaurant industry currently employs about 15 million people, nearly 1/10 of the total US workforce, but new job additions have virtually stalled this year. Data from the US Bureau of Labor Statistics (BLS) shows that in the first eight months of this year, bars and restaurants added just 13,000 jobs. In comparison, the industry added 40,000 jobs in the same period of 2024 and 173,000 jobs in the same period of 2023. Moutray says that overall restaurant traffic has been flat or even down since early fall, prompting restaurant owners to become as cautious as consumers. "More than 70% of restaurant operators say they don't expect to increase hiring in the next six months," he said. Still, sales are generally holding up well. Bank of America data shows that credit card spending at bars and restaurants in early October was up 3.2% from the same period last year, in line with trends during the past few years when the economy was stronger.

What Are the Potential Risks?

So, what problems could arise in the future? Lower-income families are facing greater pressure due to rising inflation and increased economic uncertainty. They've reduced how often they go to fast-food restaurants and have started buying cheaper groceries at supermarkets – so much so that the classic 1970s quick meal "Hamburger Helper" is becoming popular again. Even value-driven chains like McDonald's are seeing declines in visits from some customers due to rising food prices. For example, in the second quarter of this year, McDonald's reported that visits from lower-income customers, who have long been crucial to their business, have declined. The company said it would increase its promotional efforts in an attempt to lure these customers back. "Regaining lower-income consumers is crucial because they frequent our restaurants far more often than middle- and upper-income consumers," McDonald's CEO Chris Kempczinski said last month. A stock market crash could be an even bigger threat, as high-income earners are the primary consumers of takeout and high-end restaurants. Studies show that households with annual incomes of $100,000 or more make up only 43% of total US households, but they contribute nearly 60% of restaurant spending.