Are Dwindling Restaurant Sales the Sign of a Recession?

Analysts are warning the U.S. restaurant industry is headed for dark days — and worse, its troubles could be indicative of bigger economic problems.

Restaurant traffic is down and sales are flat, with a number of big chains reporting slowing sales that are falling short of estimates. While McDonald's reported a slight increase in same-store sales yesterday on its quarterly earnings call (thanks to all-day breakfast), it was significantly less than projected; last month, the Wall Street Journal reported that visits to fast-casual restaurants had declined for the first time since 2004.

Now, as MarketWatch writes, finance experts have turned "decidedly bearish" on restaurants: Stifel Nicolaus analyst Paul Westra downgraded a number of restaurant stocks including Panera, Cheesecake Factory, and Red Lobster parent company Darden to "sell" ratings yesterday, telling clients the firm believes "a recent Stifel survey showing restaurant-industry sales decelerating 'simultaneously' across all categories is a harbinger to a U.S. recession in 2017."

And there's plenty of historical evidence to support that: Westra noted that "restaurants have historically led the market lower during the three to six-month periods prior to the start of the prior three U.S. recessions," calling slowing restaurant industry sales the "canary that lays the recessionary egg."

He attributes the slowdown to a number of factors including "U.S. politics, terrorism, social unrest, global geopolitics, [and] economic uncertainty," and says the industry could be facing a gloomy two years.

But the news isn't bad for all restaurants: Sales at pizza chain Papa John's are up, Quartz pointed out earlier this week, as anxieties over political tensions and the presidential election are apparently encouraging people to stay home and order in. Thank goodness for the never-ending procession of new food delivery options.

• Recession Coming, and It Could Be 'Worst Ever' for Restaurant Stocks [MarketWatch]

• Analyst Warns of a Restaurant Downturn and Sees Harbinger of U.S. Recession[Bloomberg]

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