Restaurant Stocks May Be 'Canary In The Coal Mine' Portending Economic Doom

An article in Bloomberg today argues that restaurant stocks, which have seen some steep declines in recent months, may be the "canary in the coal mine" of the economy, portending economic doom down the line.

The piece notes that the Bloomberg U.S. Full Service Restaurant Index, a proprietary measure of the performance of restaurant stocks, has fallen 17% in the past five months, while the S&P 500 has dropped just 9%. The author's theory is that consumers may be cutting back on high-end restaurant spending because their pocketbooks are just starting to be hit anew -- and that the full brunt of their pullback in spending is yet to come. But when it does, as the argument goes, the economy could fall back into recession. This strain of thought positions full service restaurant spending as a leading indicator of overall economic prosperity.

It's an argument that has some merit, but it's not foolproof. For starters, the chief example cited in the piece is Darden Restaurants, the company behind Olive Garden and Red Lobster -- but Darden has been underperforming the S&P for some time, indicating that its issue may have as much to do with consumers' breadstick fatigue as with any underlying trends in the industry.

Moreover, even if it's true that full service has taken a hit, other parts of the restaurant biosphere have remained strong -- namely, quick service. Sure, fast food's strength doesn't necessarily bode well for overall consumer optimism.

But the fast food companies whose stocks have done well, like Chipotle and Panera, have been relatively high end. So it's possible that the restaurant trends we're seeing have more to do with consumers' shifts away from long, heavy meals and toward quick, snacky but delicious bites from places like Smashburger.

Then again, maybe we're just headed towards apocalypse. 2012 is coming, after all.

Related on HuffPost:

Comments

[skraeling]

05:36 PM on 12/21/2011

In Los Angeles, supposedly a hot spot for the recession, I have seen few UNCROWDED restaurants even those that are considered highly expensive and those very cheap... In fact, I see more new cars on the road than ever, hugely crowded fwys, parking lots, stores. I see prices rising and few going without. I work in a non profit charity and see lots of unemployed but nearly all are recent immigrants, illegals, poor language skills, or simply school drop outs along with the usual substance abusers and ex cons...I know things are hard for many but if I turn off the tv and go outside, I just don't see it..I do not live in a rich part of LA...I see a growing number of homeless, mostly vets...Something just doesn't add up.....

[johnpoplawski]

04:26 PM on 12/21/2011

people are cutting back. and let's face it food is a come and go thing. but what trouble's me is the long lines at mcdonalds. people are eating crap, because a real meal takes a little work and a dollar more. in my opinion, parents who feed their kids this sludge should be cited for abuse!! when i was a kid mcd was an emergency option if the power was out or the stove was broke. i treat it as that to this day! ps rather go to popeye's chicken, least their strips are real breast meat, not slurry made from carsasses and bleached and formed.

[SteveGarrin]

04:11 PM on 12/21/2011

Restaurant stocks may be down, but restaurant dollar sales volume is up (Last year to This year) at the Restaurants I work for in NYC.

[skraeling]

05:38 PM on 12/21/2011

Same in LA, SF, and Seattle, San Diego....something doesn't add up.

[SteveGarrin]

08:05 PM on 12/21/2011

Tourists getting value for their currency vs the US dollar.

[SteveGarrin]

08:33 PM on 12/21/2011

vidence supporting my theory:
NEW YORK -- New York City has reached its longstanding goal of attracting 50 million tourists in a year.

Mayor Michael Bloomberg announced Tuesday that the city is expected to surpass that total by the end of the year.

The 50 millionth tourist is expected sometime this week.

When Bloomberg first announced the goal in 2006, the most recent yearly total was under 43 million.

He projected it would take until 2015 to reach 50 million visitors. In 2008, he moved the deadline up to 2012.

The city's official tourism arm, NYC & Company, projects tourists will spend $32 billion in the city this year, helping to support about 320,000 jobs.

Tourists spend more in New York than anywhere else in the nation.

[tgsid]

02:59 PM on 12/21/2011

Oh, for god's sake. I can't even read an article without seeing more apocalypse 2012 rubbish.

[Highly Opinionated]

01:42 PM on 12/21/2011

Here is a canary for you. As long as Obama is in office, this country will be in deep do-do.

[skraeling]

05:38 PM on 12/21/2011

He was sent there because of the dodo we had in the White House before...he inherited what the war machine, the oil lobby and the rest left behind...sorry..

[stealcity]

12:26 PM on 12/21/2011

No matter where you eat or if you cook at home, most food is grown in a chemical mix of soil. Raw food product is refined and treated with more chemicals. Protiens are taken out to enhance other foods .The seed and the germ is taken out again to use in other food. If you wonder why you are hungry after you eat, maybe what you eat is no longer food.

[frank day]

09:43 AM on 12/21/2011

Buying and eating habits are changing.

People are cooking and eating more at home.

I'd look to invest in businesses that can capitalize on that trend.

[skraeling]

05:39 PM on 12/21/2011

Utilities and they pay a dividend.

[soozeeqster in OH]

09:27 AM on 12/21/2011

We had a Mom & Pop (not traded on the Big Board) restuarant with GOOD food, we cooked and didn't reheat it later in the microwave - made fries out of real potatoes - go figure. Closed the end of October 2011 - after enduring 3 years of declining sales in this brutal economy - our prices were reasonable, we offered coupons and specials - did EVERYTHING we should have as business people. People can't see the nutritional benefit when the food at McBarf's down the street is so totally disgusting - but its a buck cheaper. My parents were depression era teenagers and I heard the stories when I was growing up and I hear them again now - difference between the 1930s and now is folks have a higher level of personal wealth........ which is just more to lose. The stock market needs to be spanked thoroughly and forced to refinance this country and stop saving everybody else's country - problem is that China owns our stock market. And please keep in mind that you CAN buy American AND local, people. Looking for a job, BTW - to repay my 100K restaurant debt - at my present rate, I'll get it paid 4 years into retirement, yippee! Anybody got a big-bucks job for me?

[FredVenice]

11:01 AM on 12/21/2011

hopefully people will learn from your em . never, never, never open a mom and pop restaurant .. unless you have a full liquor license . that's the only way to make money in these restaurants

[Bob716]

01:54 PM on 12/21/2011

Sorry to hear of your loss.....but what you said is so true. I sincerely wish you the best in your future plans.

[stealth694]

09:10 AM on 12/21/2011

Economics 101: When your income is restricted or shrinking, Cut out the un-needed items.
To me its just as easy to make a couple of PB&J sandwiches and a small container of milk than to go to Mickey D's.
Always find out who made the predicitons.

[frank day]

09:44 AM on 12/21/2011

True.
And it's worth learning to cook.
Once you can really cook, going out to eat is usually a disappointment.
The best meals I ate this year were all at home.

[jlw100000]

09:09 AM on 12/21/2011

It seems the quality of restaurant food has gone downhill. We just don't go out to eat that often because it is so disappointing. Just the other night we went to applebee's, and found the food to be inedible. We didn't even bother boxing up what was left. We will never go back. I have a few local places that enjoy, and I will stick with them. They understand that good food is good business.

[skraeling]

05:43 PM on 12/21/2011

That is not a restaurant..it is a marginal fast food, predictable and prepackaged....sorry..I am no snob but you should avoid the corporate places, or most of them and seek out local owned and run....much better...

[Razorsharp1234]

08:01 AM on 12/21/2011

Here we go again with prediction, prediction for the stock market, CEO's, economy, employment, prediction , predictions, Do you all have a Crystall ball? I wish I had one, I would love predicting you predictors are full of yourself. I predict that the world willl end some day. Just a prediction, is the stockmarket going down now?

[booond]

12:55 AM on 12/21/2011

The restaurants who have traded stock are not fine-dining. They are fast food in a different format. As we become more attune to what good food is and where we can find it, big box brand restaurants are feeling the pinch. We can get a great meal at a little hole in the wall we found on the internet for a third of the price of eating crappy italian food

[bpkohrma]

09:45 PM on 12/20/2011

The food at Olive Garden just isn't that good. And so what you get is a disconnect at the end of the meal. Customer pays a $100 tab for what they eventually realize tasted like a $20 meal -- and they don't go back. Restaurants that do well have repeat clientele. The economic trend may well be a harbinger, but Olive Garden and that ilk are the wrong examples. Just sayin'...

[James Ortegard]

01:56 PM on 12/21/2011

If you paid $100 at Olive Garden ,you must have bought a lot of wine or they cheated you.

[Roy E Pearson]

02:36 PM on 12/20/2011

The people will still eat. Are Grocery stocks increasing, or are their sales, as Wall Street is not ahead of most curves.

I concur with Zonatron, maybe people are eating at home. I have not noticed that we are getting any thinner. Look at the waist and rear size for signs of doom.

[Zonatron]

02:02 PM on 12/20/2011

Maybe it is portending a healthy public. Maybe the public is waking up to the fact that most restaurant food is really BAD for you. Maybe people are taking control of their eating habits and voting with their forks. Maybe they figured out that the kitchen is the only place you can control what is IN your food. Maybe.

Ok wishful thinking and the point was made. EAT at home COOK at home.... live longer.

Occupy The Food System!!!!!!!!!!!