Fun indeed.   And unpredictable.   Which is odd as historically it has been fairly predictable and fairly consistent.  

For example, the SteakHouseIndex was originally designed as a predictive tool for GDP trending and growth.   American GDP definitely fluctuates — moving up and down as economic conditions ebb and flow.   But the movements are typically small, and usually follow prior trends.   Not always, of course.   For example, when Covid hit back in 2020, US economic growth fell thru the floor.   GDP growth had been trending up at about a 2% rate.   This is an unusual move caused by a 100-year pandemic.   

But history seems to be repeating itself:  Our current US economic expansion seemingly became a contraction in the blink of an eye.  That’s right:   In less than two weeks, expanding GDP forecasts have swung negative.   That doesn’t happen every day.

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:

Above I’m jesting a bit … but in all seriousness, in all my years of studying economics and tracking GDP, I’ve never seen this:

That’s right.   Two weeks ago, the Atlanta FED was predicting:

“After this morning’s housing starts report from the US Census Bureau, the GDPNow model estimate for real GDP growth in the first quarter of 2025 is 2.3% on February 19, unchanged from February 14 after rounding.”

And then, WHAM!  Two days ago, the Atlanta FED made this prediction:

The GDPNow model estimate for real GDP growth in the first quarter of 2025 is negative 2.8 percent on March 3, down from negative 1.5 percent on February 28. After this morning’s releases from the US Census Bureau and the Institute for Supply Management, the nowcast of first-quarter real personal consumption expenditures growth and real private fixed investment growth fell from 1.3% and 3.5%, respectively, to 0.0 percent and 0.1 percent.

I suspect that like me, you find this most recent GDP forecast a bit distressing and hard to believe is accurate.   So I did some digging.  

Research suggests the ‘Trump administration tariff threat’ on Canada, Mexico and China — let’s call this the TATT — triggered a massive surge in imports by many American businesses.   Clearly, many businesses took the TATT as gospel, deciding they would stockpile international goods ahead of any application of tariffs.   Makes sense, right?   After all, if your business depends on materials or products from outside our borders, its a smart business move to bring those into the US ahead of a 10%, 25%, or greater tariff cost or, more generally, supply chain disruptions.

It’s much easier to see this trade disruption in the “subcomponents” of the GDPNow model.   Take a look:

“Net Exports” — read MASSIVE imports spike — knocked 3.29% off the 2/28 forecast.   But within this subcomponent graphic, we find another cause for the decline:  Consumer spending, as measured by the PCE, also fell precipitously.   It took 0.66% off the 2/28 forecast and another 0.86% off the 3/3 forecast.   Interesting … so the cause for the massive drop in the GDP forecast is not just an import surge due to tariff fears.  No, it is also the result of shrinking consumer spending.   And this piece of the model, I’m sorry to say, might be more durable.   Clearly TATT caused both American businesses to speed up imports ahead of tariffs and caused American consumers to slow or stop spending.   That’s not good.  

As I said last week, a scared consumer is a consumer that doesn’t spend.  Sure, they spend on necessities, but they stop spending on ‘discretionary’ purchases.   And that segment, I’m sorry to say, is a huge piece of the consumer spending pie. 

In a Bloomberg article yesterday, Robert Rubin — the Treasury Secretary under Bill Clinton — suggested President Donald Trump’s economic policies have stoked the “greatest uncertainty” in his six-decade career, warning that they will undermine confidence, worsen the US fiscal trajectory and endanger US credibility on the global stage.  “A lot of what is going on is adversely affecting confidence — it is now, and I think even more so in the future,” Rubin said in an interview from the Bloomberg Invest conference in New York Tuesday.

Rubin’s comments may be a bit harsh — considering the source.   But whether the TATT qualifies for the greatest uncertainty in 6-decades or not, any erosion in consumer confidence is undesirable. 

Has consumer fear adversely impacted our steak houses?   Let’s take a look.

Not yet.   SHI reservations this week remain consistent with last week.    But rest assured, we will be watching reservation demand closely in future weeks.   Here’s the longer term trend chart:

Bottom line:   The recent Atlanta Fed GDPNow readings appear to be an aberration.  The U.S. economy isn’t collapsing—not yet, and hopefully, not at all.  But time will tell.  Fear is corrosive, and its effects should not be underestimated.

<:  Terry Liebman  :>