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Why Consumer Confidence Impacts the Restaurant Industry

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Consumer confidence

Two separate entities—the Conference Board and the University of Michigan—collect and report consumer confidence data each month. Both measures are indexed arbitrarily to 100. A higher level means consumers are positive about the economic condition. An increase in consumer confidence leads to an increase in spending and vice versa.

 

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Interpreting consumer confidence levels

The Conference Board Consumer Confidence Index as of May 2015 is 96.5 compared to 102.2 in April. The University of Michigan Consumer Sentiment Index for May is 88.6 compared to 95.9 in April. Both indices have been rising since 2009 from lows of 25.3 and 55.7, respectively. This drop in consumer sentiment shows a weakness in economic conditions.

Takeaway for the restaurant industry

A declining consumer sentiment is a negative for restaurant stocks such as Brinker International (EAT), Noodles & Company (NDLS), and Potbelly (PBPB). It’s also a negative sign for the consumer discretionary sector such as the Consumer Discretionary Select Sector SPDR Fund (XLY). XLY holds about 1% of fast casual restaurant Chipotle Mexican Grill’s stocks and 4% of McDonald’s (MCD).

The restaurant industry has been benefiting from lower fuel prices for the past couple of months. In the next part, we’ll look at this in more detail.

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