The Malaysian Reserve

Americans are spending like crazy at restaurants

Sales at food-service and drinking establishments rose 1.3% in July to US$61.6b (Photographer: Luke Sharrett/Bloomberg)

By READE PICKERT & SCOTT LANMAN

Spending at US restaurants surged over the past three months by the most on record, making it both a bright spot for the economy and a risk if appetites for eating out return to normal.

Sales at food-service and drinking establishments rose 1.3% in July to US$61.6 billion (RM252.56 billion), the Commerce Department reported on Aug 16. That brought the three-month annualised gain to 25.3%, the fastest pace in figures going back to 1992.

Dining Out is Taking Off

Such historic gains caught the attention of economists. Kevin Cummins and Michelle Girard at NatWest Markets said the figures indicate “consumers remain quite comfortable with their personal financial situation and the economic outlook”. Omair Sharif of Societe Generale SA noted that restaurants accounted for 30% of the July increase in retail sales, but just 12% of the total.

“Any mean reversion here would lead to a noticeably slower pace of retail sales in the coming months,” Sharif wrote in a research note.

One possible explanation for the recent jump is that Americans are spending their extra cash from tax cuts on dining out. In addition, major restaurant companies have recently hiked menu prices to keep up with higher minimum wages and rent costs.

Sharif said the recent gains appear to reflect more people eating out more frequently, rather than just rising prices. The retail figures are adjusted for seasonal variation, but not for inflation.

Cummins said consumer confidence is elevated and the fiscal stimulus may be having an effect on the data, citing a “very strong” pace of consumption gains in the second quarter.

Industry data show restaurant sales are growing while customer traffic declines, resulting in higher average checks, according to MillerPulse figures cited by Bloomberg Intelligence analyst Jennifer Bartashus.

While McDonald’s Corp last month reported a gain in the key measure of same-store sales, its customer traffic still fell in its home market of the US — suggesting fewer diners are coming in, but they are spending more.

Across the industry, restaurants are increasingly pushing delivery and discounts to attract diners. Chipotle Mexican Grill Inc this year is muscling its way into the delivery market with DoorDash and Postmates tie-ups. Meanwhile, fast-food chains are locked in a battle to offer the cheapest burger. — Bloomberg