Must-know: Expectations about business conditions

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Business conditions

The Expected Business Conditions Index is part of the Expectations Index. It measures restaurant operators’ outlook towards business conditions over the next six months.

Just like the other indicators under the Restaurant Performance Index, when the Expected Business Conditions Index is at levels above 100, it indicates an expansionary outlook over the next six months.

 Expected Business Conditions 2014-10-13

Interpretation

As of August 2014, the Business Conditions Index was at 101.4. It increased 0.7% compared to July 2014. In the above chart, we see that the outlook towards business conditions has been over 100 for the past 11 months—since October 2013.

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According to the National Restaurant Association (or NRA), the restaurant operators had a mixed outlook towards business conditions over the next six months. About 27% of the restaurant operators expected business conditions to improve over the next six months. 60% expected the business conditions to remain the same. About 13% of restaurant operators expected business conditions to decline.

Positive business conditions would involve more customers. The customers would increase their discretionary spending. They would eat out at restaurants. This would eventually help increase stocks’ top line. Examples of stocks that would benefit include Chipotle Mexican Grill (CMG), Panera Bread (PNRA), DineEquity (DIN), and Taco Bell and Pizza Hut—under Yum! Brands (YUM).

Yum! Brands is also a part of a broader consumer discretionary portfolio—the Consumer Discretionary Select Sector SPDR (XLY).

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