Let’s go straight to the meat of the matter. 

Welcome to this week’s Steak House Index update.

If you are new to my blog, or you need a refresher on the SHI10, or its objective and methodology, I suggest you open and read the original BLOG: https://www.steakhouseindex.com/move-over-big-mac-index-here-comes-the-steak-house-index/

Why You Should Care:   The US economy and US dollar are the bedrock of the world’s economy.   But is the US economy expanding or contracting?

Expanding … according the ‘advanced’ reading just released by the BEA, Q3, 2024 GDP grew — in ‘current-dollar‘ terms — at the annual rate of 4.7%.

The ‘real’ growth rate — the number most often touted in the mainstream media — was 2.8%.   In current dollar terms, US annual economic output rose to $29.35 trillion.

According to the IMF, the world’s annual GDP  expanded  to over $105 trillion in 2023.   Further, IMF expects global GDP to reach almost $135 trillion by 2028 — an increase of more than 28% in just 5 years.

America’s GDP remains around 25% of all global GDP.  Collectively, the US, the European Common Market, and China generate about 70% of the global economic output.  These are the 3 big, global players.   They bear close scrutiny.

The objective of this blog is singular.

It attempts to predict the direction of our GDP ahead of official economic releases.  Historically, ‘personal consumption expenditures,’ or PCE, has been the largest component of US GDP growth — typically about 2/3 of all GDP growth.  In fact, the majority of all GDP increases (or declines) usually results from (increases or decreases in) consumer spending.  Consumer spending is clearly a critical financial metric.  In all likelihood, the most important financial metric. The Steak House Index focuses right here … on the “consumer spending” metric.  I intend the SHI10 is to be predictive, anticipating where the economy is going – not where it’s been.

Taking action:  Keep up with this weekly BLOG update.  Not only will we cover the SHI and SHI10, but we’ll explore “fun” items of economic importance.   Hopefully you find the discussion fun, too.

If the SHI10 index moves appreciably -– either showing massive improvement or significant declines –- indicating growing economic strength or a potential recession, we’ll discuss possible actions at that time.

The Blog:

Today’s economic world remains a deeply integrated, complex and interconnected economy puzzle.  At the risk of mixing metaphors, it’s hard to tell which of today’s sweeping forces will trump the others:  Will resilient consumer spending trump rising interest rates, or will inflation expectations trump wage growth before anyone notices if their 401(k) is singed or completely charred to the bone?

Even our esteemed SHI grilled T-Bone — our foundational barometer of consumer indulgence — hasn’t been spared.  Even here, supply chain disruptions occasionally trump inventory planning, driving up steak prices faster than a sous-vide timer.  Globalization, which pre-Covid, would trump local inefficiencies, now struggles to trump even a decent domestic rib-eye.

And as consumers weigh whether to splurge on a filet or substitute for flank, the only certainty is that expensive steak demand may no longer trump budget anxiety at the opulent eateries of our 40-strong Steak House Index.  

Phew.  Good.  No mention at all of “he who will not be named” here.   🙂

As I prepared today’s SHI matrix, I anticipated I would see an appreciable reduction in demand for expensive steak house reservations.   “The consumer is under considerable distress,” I’ve heard in many quarters both pre- and post-tariff tantrum.    And, of late, I’ve heard a similar comment about the “higher end” consumer — you know, the folks who generally visit the SHI40 restaurants.  

Interestingly enough, we’re not seeing any of that distress in the SHI40.   In fact, this week’s SHI reading is higher than it’s been in weeks.

Here’s the longer-term chart.   Again, restaurant reservation demand seem to have stabilized.  After the prior two readings, I expect to see another “rare red” SHI reading this week.   Nope.   We’re back in the black.   Does this seem counter intuitive to you?   You’d be in good company if it did:   The cacophony from DC and the global news media would suggest the consumer is curled up the the closet, babbling incoherently. 

Perhaps many are.   Consumer distress is a real, valid concern these days.   So to assess the depths of that concern, I turned to the FEDs Beige Book, which was just released today.  

The Beige Book is published by the FED 8 times a year – just as the FED meets 8 times a year to set interest rate and monetary policy.  It hopes to capture anecdotal information on economic conditions in each district – think of it as a more “qualitative” survey that than purely numerical.  When completing the report, the FED will tap a variety of sources, including interviews with businesses, community organizations, economists, and market experts across all 12 Federal Reserve Districts.

High level, the report indicates that U.S. economic activity has slowed.   Uncertainty and anxiety are largely attributed to recent tariff threats and implementations.  Businesses and consumers are exhibiting caution:  there’s been a surge in automobile purchases ahead of anticipated price hikes; at the same time, many firms are postponing investments due to unpredictable costs and ambiguous trade policies. 

The report underscores widespread concerns across various sectors, including construction slowdowns, escalating material costs, and potential layoffs.   On the jobs front, the San Francisco FED observed modest inflation in prices and employment reductions; while, the Atlanta and St. Louis FED reported possible job cuts.  I’m not certain what “possible” means — perhaps threat of job cuts?   Evidence suggests both household and business confidence are declining. 

Tariffs are a prominent theme in the report, mentioned 107 times, reflecting their significant impact on the economy. Businesses are receiving and sending notices about impending price increases due to tariffs, leading to minimized new investments and varied cost scenarios.  The Richmond FED highlighted instances where companies are warning customers of price hikes, and some businesses are finding conditions too chaotic to make future investment decisions.  Ouch.

Chair Jerome Powell and other officials believe that these tariffs are quite likely to contribute to higher inflation and slower economic growth.  Will they?   Time will tell.

The phrase “consumer distress” does not appear in this Beige Book.   Generally the consumer does appear to be under increasing financial pressure, but yet there is not widespread evidence of behavioral changes.   However, consumer spending is observed to have weakened a bit across several of the 12 districts.   In New York, some eateries have reported lower restaurant sales as well as consumer substitution of “flank” for “filet,” as I joked above.   Some commented foot traffic seems down; more people seem to be eating at home.   Yet reservation demand at the SHI remains reasonably robust.    Hmmm…..

Interesting stuff.   

<:  Terry Liebman  :>