uploads/2015/07/NRAs-Expected-Business-Conditions-2015-05-311.jpg

Restaurant Industry: Growth Is Expected in 2015

By

Updated

Restaurant industry

Some of the biggest players in the US restaurant industry include McDonald’s (MCD), Starbucks (SBUX), Yum! Brands (YUM), and Chipotle Mexican Grill (CMG). Together, these four companies account for 9.8% of the Consumer Discretionary Select Sector SPDR ETF (XLY).

Article continues below advertisement

Restaurant industry sales

The restaurant industry is poised to grow to $709 billion in sales in 2015, according to Restaurant.org. For the industry, expectations on business conditions over the next six months to have softened, as you can see in the above chart. In this series, we’ll look at some of the indicators that will help us gauge the near-term future for the restaurant industry.

Key restaurant indicators

In our previous edition of the weekly restaurant indicator series, we highlighted the slowdown in the economy. It could dampen sales in the restaurant industry. We’ll continue to track more indicators to see where the economy is headed and its potential impact on restaurants.

The preference to eat at a restaurant is greatly dependent on the economic cycle. This is the nature of the consumer discretionary sector. It means that when the economy is doing well, people have jobs and are willing to spend at a restaurant as opposed to cooking at home and vice versa.

We can know the strength of the economy by looking at the GDP (gross domestic product) and the Chicago Fed National Activity Index. We’ll also look at the labor market by tracking initial jobless claims. Then, we’ll look at the overall consumer sentiment. We’ll continue our discussion with retail sales indicators like the ICSC-Goldman index and Johnson Redbook. Both indices tell us about consumers’ spending on discretionary items. To summarize, we’ll look at how the fuel price trend impacts restaurant stocks.

Advertisement

More From Market Realist