The Big Idea

Check, please

| September 17, 2021

This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors. This material does not constitute research.

The Delta wave has put a drag on consumer demand since early summer, according to some analysis, but the degree is unclear.  Some services are very sensitive to the ups and downs of the virus The August retail sales data, as well as high-frequency industry data, provide a check on the Delta wave drag hypothesis. Both sets of figures show restaurant spending held up well in August, suggesting the supposed drag on consumer spending this summer may turn out to be exaggerated.

Restaurant receipts

The Census Bureau’s monthly survey of retail sales covers a variety of retailers, all of whom sell goods. There are general merchandise stores like Wal-Mart and Target, clothing stores, home improvement outlets, gas stations, grocery stores, drug stores, and even nonstore retailers—mainly those who sell over the Internet. The only exception to the goods focus in the retail sales report is that the Census Bureau also collects data from restaurants.

In the current context, this is fortunate. The pandemic, by discouraging personal contact, led to consumers spending more on goods and less on services, especially in periods when the virus has gotten worse, heightening the risk of close contact with a lot of people. The restaurant component of retail sales offers a sneak peek into the fortunes of the services sector, which accounts for almost two-thirds of overall consumer spending. And it comes about two weeks before the broader consumption expenditures figures are released, usually around the end of each month.

Restaurants receipts had declined noticeably late last year, the last time that Covid cases and hospitalizations surged by as much as they have during the Delta wave.  Two rounds of federal rebate tax checks, one in late December and another even larger round in March and April, and the ebbing of the virus allowed restaurant receipts to get back on a solid growth track this year.  After explosive gains in January and March, coinciding with disbursal of the checks, restaurant receipts continued to post robust increases: 5.1% in April, 4.3% in May, 2.4% in June, and 1.3% in July.  The July reading in nominal dollars was almost 9% higher than the pre-pandemic pace (Exhibit 1).

Exhibit 1: Restaurant receipts have surged

Source: Census Bureau, Amherst Pierpont Securities

There was widespread speculation that the Delta wave led to a substantial pullback in restaurant spending along with other types of service activity in August and likely September as well.  I have to admit that I had penciled in a modest decline for restaurant receipts in my own retail sales forecast (about 2%).  However, as it turns out, the Census Bureau reported that restaurant receipts were roughly flat last month.  While this is not a stellar outcome, especially given the pace of inflation in the sector in recent months, it was considerably better than expected.

High-frequency data

Since the onset of the pandemic, economists have relied more than usual on high-frequency data, as economic activity has tended to move up and down in larger magnitudes and more quickly than in a normal economic environment.  For the restaurant industry, the data that has drawn the most focus has been numbers from OpenTable measuring the quantity of seated diners in restaurants around the country.  These figures are incredibly timely—daily with a single day’s lag—and are quite detailed, including national data for the U.S. and several other countries as well as state-by-state tallies.

OpenTable reports their data as daily percent changes compared to the corresponding day in 2019, to escape the distortions caused by the pandemic to last year’s figures.  So, 2020 figures are year-over-year, but 2021 observations are compared with two years ago.  Of course, daily data are subject to massive swings, as weather, floating holidays, and other factors can sharply impact the year-over-year comparisons for any given day.  To smooth most of those fluctuations, I calculated 14-day moving averages for the OpenTable year-over-year comparisons (Exhibit 2).

Exhibit 2: OpenTable Seated Diners 2020-21 vs. 2019 Percent Change
(14-day moving average)

Source: OpenTable.

The OpenTable show that after a sharp recovery in the spring and summer of 2020 as lockdowns eased, the winter Covid surge and perhaps weather less conducive to outdoor dining led to a sharp pullback in restaurant diners, taking the year-over-year decline from around 40% all the way down to almost 70%.  In contrast, the dip seen in August 2021 was just a few percentage points.  It is also worth pointing out that the largest daily two-year declines recently came during the week that Hurricane Ida tore through Louisiana and then flooded much of the Mid-Atlantic coastal region.

I also created monthly averages of the 14-day moving averages.  This measure is perhaps trailing to a degree, but it offers a bigger-picture view of the progress of restaurant diners, closer to being analogous to the monthly retail sales numbers.  Exhibit 3 shows the monthly readings since the spring.

Exhibit 3: OpenTable Monthly Averages

Source: OpenTable.

In the end, the number of restaurant diners softened marginally in August, likely due to a combination of Delta fears and the fleeting impact of Hurricane Ida.  This is broadly consistent with the retail sales figures examined above. Remember that prices have been moving sharply higher, so that nominal dollars spent in August should be performing a little better than the number of diners.

The OpenTable data offer good news for September as well.  The average over the first half of the month has ticked back up to -6%, in line with the July average.  Of course, this is not a particularly robust result, but if this is as bad as it gets during the Delta wave, then the economy should be in good shape moving forward.  If the number of restaurant diners in the midst of the Delta wave is steady, then, as the virus ebbs, I would anticipate that sales would be in a position to swing noticeably higher in the fall.

I would add one caveat as a qualifier: the Delta wave may have lead to a steeper drop in other types of services spending than for restaurants.  Air travel comes to

mind as one plausible area that was hit harder in August.  Nonetheless, the data on restaurant spending offers some comfort that any slowdown in activity as the virus flared up this summer will prove manageable.

Stephen Stanley
1 (203) 428-2556

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