SHI Update – June 8, 2016

The Employment Situation
June 7, 2016
The Physics of Economics, Part 2
June 12, 2016

It’s that time again!   Let’s jump back into that haven of the bourgeoisie and sink our teeth into the succulent haute cuisine at our high-dollar Steak Houses!  (Yes, I know…I know.  Bernie would not approve.)

Did you notice?  2 weeks have now passed since the last update.  I could make excuses for my failure to post last week, but I won’t.   Truth be told:  I simply missed “the window.”

As you know, our rigid methodology behind data collection mandates that I access OpenTable between 11 am and noon on Wednesday to investigate the following Saturday evening reservation availability at our 4 elite steakhouses.   I call that “the window.”   Last Wednesday, later in the day, when I realized my error, I knew we would have to skip the week.   I apologize.   But we’re back!

As always, if you need a quick refresher, check out the original blog: https://terryliebman.wordpress.com/2016/03/02/move-over-big-mac-index-here-comes-the-steak-house-index/


Why you should care:  The US Department of Commerce ‘Bureau of Economic Analysis’ publishes the most recent GDP figures the instant they’re available.

Here’s the problem:  GDP numbers are reactive.  They only tell us what happened to the economy…months in the past.   Which means we can’t make financial/investment choices – personal or business – before the economy turns sour, only after.   Not good.   We want advance notice of an economic decline.   The SHI may help give you that.

Our objective with the SHI is to be predictive, to anticipate when the economy is going to ‘turn’ and give you the ability to take action early – not when changes are too late.


Taking action:  Just keep up with the weekly column.   If the index changes appreciably – either showing massive improvement or significant declines – indicating expanding economic strength or a potential recession, we’ll discuss possible actions at that time.  Trending is very important…and we’ll watch the trend.


THE BLOG:  As I said above, the accuracy of the economic predictive power of the SHI requires us to maintain rigid methodology:

  • Data is collected at the same time each week – Wednesday between 11 am and noon.
  • Data is collected from only one source.
  • We focus on the same 4 restaurants.
  • We search exclusively for a table for 4 people.
  • We have an algorithm that calculates the SHI in an identical fashion every time.
  • Our restaurants are quite exclusive, likely to cost $100 or more per person – meaning demand for their products and services are the most likely to respond to a shift in economic conditions – a pure reflection of behavioral economics.

Methodology is only part of the picture, however.  Equally important is the correlation of that which we’re measuring to the GDP.  How important is consumer behavior at restaurants to the GDP?   As it turn out, very important.

The GDP is compiled by the US Bureau of Economic Analysis (BEA), focusing on four economic areas and activities:

GDP image

In their latest data release on May 27th, they reported that the 2016: Q1 GDP “seasonally adjusted in annual rates, in billions of dollars” totaled $18,229.5.    Here’s how each of the four major categories added into the total:

  • Personal Consumption Expenditures (PCE) – $12,513.8
  • Investment – $3,009.8
  • Net Exports – ($506.8)
  • Government Expenditure – $3,212.7

Last quarter, ‘Exports’ were a drag on the GDP, reducing the final figure by over $500 billion.   Ouch.  We’ve talked about this before – it’s the impact of the very strong US Dollar vs. other currencies around the globe.    (Another topic for another day.)

Of the total, PCE are clearly the most important – representing almost 69% of the entire US GDP.  ‘Investment’ represents another 16.5% of the GDP.  Combined, these two equal over 85% of our GDP performance.

I would argue the SHI gives us visibility into both.   Consumer behavior and consumption, clearly, but also (a stretch, I would admit) investment behavior.   Remember:  Many clients of these expensive eateries are there for business purposes.

So we’re touching both PCE and Investment with the SHI!   Excellent!

OK…how are our restaurants doing this week?   Let’s take a look:

SHI

Pretty good!   This week the SHI reading is a positive 4.   Once again Mastros ‘Ocean Club’ in Newport beach is booked solid – until 9:00 pm.   Both Mortons (Santa Ana) and Ruth’s Chris (Irvine) are making a strong showing, with most tables booked before 7:15.   Here is our running tally of SHI index readings:

shi 2

Are you noticing an improving trend?   While we had one strong SHI index showing back on 3/9, 4 of the most recent 5 SHI index readings have been quite robust.   Indicating, possibly, improving economic strength?    You may recall that the NY FED ‘Nowcast’ is reflecting an identical reading:  the GDP is picking up a bit of steam.  Not too much, mind you, but a bit.   Take another look:

GDP Nowcast Update – June 3, 2016

While not germane to our economic conversation, I have to make the observation that once again, The Capital Grille is wide open.  You can have any table you want, in any time slot.  They are truly the ‘Charlie Brown’ of the high-dollar steakhouses.  So sad for them!

(By the way, the Capital Grille is owned by Darden – NYSE symbol DRI.   Darden has a market cap of over $8.5 billion; trades at a P/E of 25.8; and, pays a dividend yield of 2.97%.   If the SHI tells us anything, it tells us to avoid this stock.   🙂 )

Thanks for reading!

  • Terry Liebman