Reservations required . . . about the economy

Rachel Dornhelm Aug 25, 2006

KAI RYSSDAL: It’s been a pretty busy week for economic doomsayers. Given that it’s the end of August. We told you about home sales falling. And orders for durable goods not really holding their own. Kinda dry economic statistics, right? Here’s one that’ll bring it home a little bit better. If you’ve been paying attention, you might have noticed it’s been a whole lot easier to get a table at a chain restaurant this summer. Rachel Dornhelm reports the slump reveals more unappetizing news about the general economy.

RACHEL DORNHELM: It’s simple, says Wachovia senior economist Mark Vitner. Casual dining spots are hurting this year because rising gas prices and dropping home values mean more consumers are on a financial diet.

MARK VITNER: They’re having to find ways to cut back spending. And one of the easiest places to do that is in dining out because you can easily substitute bringing a lunch to work, or staying at home and cooking dinner for yourself.

Vitner sees brown bagging it as just another indication of a downward trend.

VITNER: It’s just a sign of a slowing economy, which is exactly what we’re expecting. Economic growth has averaged around a 3.5 percent pace for the last two-and-a-half years and it’s likely to slow to something around a 2.5 percent pace.

Still, restaurant industry analyst Dennis Milton says not every dining establishment is under the gun.

DENNIS MILTON: The upscale restaurants are doing pretty well and that is because the higher income consumer is not nearly as impacted by high gasoline prices as the lower-end consumer.

So for right now, all this belt tightening is really just squeezing restaurants serving Middle America. Milton says the numbers show customers from mid-priced chains like Applebee’s and Chili’s are defecting to places like McDonalds.

MILTON: So fast food is actually doing pretty well. They are losing some of their customers at the low end, but in turn they are gaining more customers at the upper end of their price range.

Milton doesn’t believe this industry foretells a recession, though it could impact consumer confidence. Money spent on food away from home is more than 50 percent of food expenditures in the US.

I’m Rachel Dornhelm for Marketplace.

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