Consumers Skip Dining for Cars as Sales Slow

From Bloomberg.com:

Restaurant sales contracted in June and July, even as spending on other discretionary categories such as automobiles and homes grew, a sign some Americans remain budget conscious.

This marked the first two consecutive declines in the monthly index of restaurant sales after the industry was rocked by its worst streak in almost three years between December and February.

Preliminary data suggest that August sales still are weak, though “better than July,” said Malcolm Knapp, a New York-based consultant who created the index and has monitored the industry since 1970. The summer slowdown is a symptom of a “reallocation nation,” in which people choose between different discretionary items to purchase each month, he said.

“Consumers’ priorities change every month based on what they can afford,” Knapp said. Many Americans don’t eat out as often as they would like, and they’ve had to cut back “very begrudgingly” on meals away from home to help subsidize other purchases....

Americans bought 5.39 million existing homes in July, up 17.2 percent from a year ago and the strongest month of demand since November 2009, according to data from the National Association of Realtors.

Cars and light-duty trucks sold at a 15.7 million seasonally adjusted annualized rate, keeping the U.S. on track for its best year since 2007, when 16.1 million vehicles were sold.

With “only so much income coming in,” many consumers had put off auto purchases for several years, said Rob Morgan, who oversees $1 billion as chief investment strategist in Exton, Pennsylvania, at Fulcrum Securities LLC.  Now, a “forced replacement cycle” for cars on the road more than a decade is helping boost sales, he said.

Douglas Benn, chief financial officer of Cheesecake Factory, cited auto and home sales during a July 24 conference call as a reason why “consumers, at least temporarily, are cautious about spending their discretionary dollars” at restaurants...

The Bloomberg U.S. Full-Service Restaurant Index -- made up of 21 companies including Cheesecake Factory, Brinker, Bloomin’ Brands and Darden Restaurants Inc. (DRI) -- has lagged behind the Standard & Poor’s 500 Index by 4.5 percentage points since July 9. That followed about five months when these stocks led the broader market by about 20 percentage points.

Weaker demand at restaurants “speaks to the bifurcated nature of this recovery,” said Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC....
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Link: http://www.bloomberg.com/news/2013-08-23/consumers-skip-dining-for-cars-as-sales-slow-ecopulse.html