Restaurants are booming despite financial market turmoil

Diners enjoy a meal at Leona restaurant in Venice. Southern California, one of the fastest-growing regions for restaurants in the nation.
Diners enjoy a meal at Leona restaurant in Venice. Southern California, one of the fastest-growing regions for restaurants in the nation.
(Genaro Molina / Los Angeles Times)

One part of the U.S. economy is enjoying a surprising boom, and it should prove useful in combating the recent slowdown: Americans are spending more eating out than ever before.

The restaurant industry, long a reliable indicator of the underlying economy, has become an economic standout at a time of financial market turmoil and global uncertainty.

Sales at food service and drinking places jumped nearly 8% last year from 2014, more than double the pace of growth for total retail sales.


Employment at restaurants and watering holes grew nearly twice the rate of all other sectors combined over the past five years. Last month, eating and drinking places created 47,000 new jobs, more than what manufacturers added all last year, according to the Labor Department.

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Shifting demographics and a 6 1/2-year economic recovery are fueling the industry’s growth. American consumers have paid down debts since the Great Recession. Job openings are more plentiful, wages are starting to rise a little faster and cheaper gasoline is putting more cash into consumers’ pockets.

Average spending on food services rose to a new high of nearly $1,900 a person last year, surpassing the previous peak during the housing bubble in 2006 and far above the $1,650 a person in 2009.

The industry’s success may bode well for the U.S. economy. In times past, when economists’ crystal balls got murky and it was hard to tell whether the U.S. was sliding toward recession, restaurants were the one indicator with an uncanny record of accuracy.

Some economists view the industry’s growth and profitability as a promising sign, particularly as concerns grow that China’s slowdown and plunging oil prices could throw the U.S. and other economies into recession.


Although the Standard & Poor’s 500 stock index is down about 9% since the start of the year, earnings for S&P’s discretionary consumption group, which includes restaurant companies, are projected to keep growing by double-digit percentages this year.

“That’s a pretty solid indication the economy isn’t going into recession,” said Lindsey Bell, a senior analyst at S&P Global Market Intelligence.

The trouble is that a growing body of evidence suggests that restaurants may no longer be the faithful measure of general prosperity they once were. A host of social and other changes may have upended the role of restaurants in American society, and in the process changed their predictive power.

Until fairly recently, going to a restaurant was seen as a splurge — a relatively rare event that signaled consumers felt confident enough to spend their discretionary income on eating out.

Today, not so much. What’s pushing many more people to eat out or buy takeout has more to do with life than economic cycles.

Most younger Americans are putting off marriage longer than their parents did. Couples are having fewer children too. The nation’s population under 20 is already down to 25% of the total, from about 30% two decades ago, and it’s expected to fall to 22% by 2050, said Jeremy Cohn, an analyst at Moody’s Analytics.

Adults with children are much less likely to eat out, he noted.

“Getting the kids in the car and to and from a restaurant or finding a baby sitter is much more of a hassle than a weekly trip to the grocery store,” Cohn said. With fewer kids, he said it’s not surprising that more people are eating out and grocery purchases have dropped to a near a five-year low.

For Debbie Jones, an attorney at Alston & Bird in Los Angeles who seldom has time to cook, eating out is often more necessity than luxury. The mother of 9-year-old twins says she also sees going out to eat as an escape from her hectic life. “A lot of times I’ll turn to a good meal, [and tell myself] oh, I deserve this.”

Michael Hill, 23, of Potomac, Md., doesn’t make a lot of money working part-time as a roofer. But living at his parents’ home means that he doesn’t have to choose between eating out and paying rent or the utility bills.

So a couple of evenings a week, he’ll hit a nearby Chipotle restaurant or something like it.

“I always look for something that has protein,” said the weight-lifting enthusiast, digging into a beef-and-vegetable bowl at B-Bop-Q, a Korean fusion eatery in Bethesda, Md.

Restaurant spending is also getting a push from a proliferation of TV celebrity chefs and culinary and wine tours that have given rise to a foodie culture in America. People talk about eating out as an “experience” and share it widely on Internet travel sites and social media.

“The millennial generation likes their food, they take pictures of their food. It’s a key part of the service-on-demand economy,” said Blu Putnam, chief economist at the CME Group in Chicago.

Perhaps nowhere has the trend been felt more acutely than Southern California, one of the fastest-growing regions for restaurants in the nation.

“We eat out more and more as Americans,” said Kathy Hoang, director of the Los Angeles chapter of the Restaurant Opportunity Center, a worker training and support group. “There’s a lot of opportunity in Los Angeles to open up restaurants, to experiment with different concepts, a lot of creativity.”

As the economy has slowed to a crawl in recent months, it remains unclear whether American consumers, whose spending makes up about two-thirds of economic activity, will keep buying enough cars, food and services to hold up the world’s largest economy. Powerful head winds from abroad have shrunk U.S. exports and begun to wear on business confidence.

Restaurant sales closely track consumer sentiment, which in turn dovetails with employment and income trends. So far, they’ve all withstood the financial tempest.

The National Restaurant Assn. is looking for somewhat stronger sales for the industry this year.

“There’s still substantial demand to use restaurants more in daily life,” said Hudson Riehle, the group’s research director.

Even with more places installing self-ordering kiosks and technologies in the kitchen, there’s been no letup in hiring, in part because productivity has been so low.

Restaurants, bars and coffee shops now employ more than 11.2 million workers. At the current rate of growth, the industry will overtake manufacturing in employment in about three years.


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