One sentence from a restaurant company's conference call reveals the hidden strength of the US economy
Business Insider
But retail sales have disappointed of late, and a recent chart from Jefferies made it seem as if consumers aren't planning a huge increase in spending coming up this year.
(Though Bank of America Merrill Lynch's Michelle Meyer noted in a recent research report that this disappointment may also be a result of retail sales being reported in nominal, not real, dollars, which means that inflation-adjusted sales aren't such a huge disappointment after all.)
One area of strength, however, has been restaurants and bars.
Sales at restaurants and drinking places topped grocery sales for the first time ever in January, and restaurant sales have been spiking over the past few months. So, there is certainly some consumer strength out there, even if the headline numbers are disappointing.
On Friday morning, Darden Restaurants, which owns and operates Olive Garden and LongHorn Steakhouse among other restaurants, reported earnings per share that topped expectations on same-store sales that rose 3.3% in the quarter.
And on its conference call, the company said something that reveals the hidden confidence consumers have right now.
Darden's observation, which came to us via Conor Sen of New River Investments, is that the company is seeing more add-on sales like alcohol and dessert.
From the Darden call, "For the first time in a long time we're seeing alcohol sales grow, add-on sales grow, dessert sales grow."
- Conor Sen (@conorsen) March 20, 2015
This may seem like a throwaway line, but Darden is picking up on a real increase in confidence.
The economists' math on how much of a "tax break" consumers receive from a decline in gas prices uses the old economic maxim of assuming rational actors. But people aren't rational - they're just people.
As a result the savings rate has increased as gas prices have declined, and Wells Fargo found earlier this year that it seemed as if people were actually spending more money on gas despite the decline in prices.
With gas prices having been elevated for years since the financial crisis, there is a school of thought that says consumers won't really do anything with those gas savings until they are confident these prices are here to stay. And the future of gas prices, of course, remains uncertain.
But right now it seems consumers are on at least one small but meaningful level spending more money on things they wouldn't usually spend on.
Another good sign for the economy.
- 2 states where home prices are falling because there are too many houses and not enough buyers
- US buys 81 Soviet-era combat aircraft from Russia's ally costing on average less than $20,000 each, report says
- A couple accidentally shipped their cat in an Amazon return package. It arrived safely 6 days later, hundreds of miles away.
- BenQ Zowie XL2546X review – Monitor for the serious gamers
- 9 health benefits of drinking sugarcane juice in summer
- 10 benefits of incorporating almond oil into your daily diet
- From heart health to detoxification: 10 reasons to eat beetroot
- Why did a NASA spacecraft suddenly start talking gibberish after more than 45 years of operation? What fixed it?