One sentence from a restaurant company’s conference call reveals the hidden strength of the US economy (DRI)
Business InsiderSince the price of gas has collapsed, economists have been waiting for the surge in consumer spending.
But retail sales have disappointed of late, and a recent chart from Jefferies made it seem like consumers aren’t planning a huge increase in spending coming up this year.
(Though Bank of America Merrill Lynch’s Michelle Meyer noted in a recent research report that this disappointment may also be a result of retail sales being reported in nominal, not real, dollars, which means that inflation-adjusted sales aren’t such a huge disappointment after all.)
One area of strength, however, has been restaurants and bars.
Sales at restaurants and drinking places topped grocery sales for the first time ever in January, and restaurant sales have been spiking over the last few months. So, there is certainly some consumer strength out there, even if the headline numbers are disappointing.
On Friday morning, Darden Restaurants, which owns and
And on its conference call, the company said something that reveals the hidden confidence consumers have right now.
Darden’s observation, which came to us via Conor Sen of New River Investments, is that the company is seeing more add-on sales like alcohol and dessert.
From the Darden call, “For the first time in a long time we’re seeing alcohol sales grow, add-on sales grow, dessert sales grow.” — Conor Sen (@conorsen) March 20, 2015
This may seem like a throwaway line, but Darden is picking up on a real increase in confidence.
The economists’ math on how much of a “tax-break” consumers receive from a decline in gas prices uses the old economic maxim of assuming rational actors. But people aren’t rational — they’re just people.
As a result the savings rate has increased as gas prices have declined, and Wells Fargo found earlier this year that it looked like people were actually spending more money on gas despite the decline in prices.
With gas prices having been elevated for years following the financial crisis, there is a school of thought that says consumers won’t really do anything with those gas saving until they are confident these prices are here to stay. And the future of gas prices, of course, remains uncertain.
But right now it looks like that at least on some small, but meaningful, level consumers are spending more money on things they wouldn’t usually spend on.
Another good sign for the economy.