Tax Cuts Fail to Stimulate Restaurant Sales

Same-restaurant sales fell 0.3% in January, ending three straight months of flat or positive growth.

After three months of flat or positive sales growth, the restaurant sector saw same-store sales fall 0.3% in January, according to data from industry tracker TDn2K. That’s bad news for a sector that was mired in recession until late last year, as consumers confronted higher prices for everything from rent to medical bills.

The data are based on TDn2K’s tracking of weekly sales from more than 30,000 restaurant units, representing more than 170 brands and $68 billion in annual revenue.

Joel Naroff, president of Naroff Economic Advisors and economist at TDn2K, said tax cuts should start to boost restaurant attendance soon. “Stronger growth in the 3% range looks likely this year and into 2019 as consumers spend the extra money in their paychecks and businesses increase their capital spending,” he said.

One bright spot in the January numbers was a positive performance for fine dining and upscale casual, the two segments that have outperformed for the last year. Business-related dining contributed to the climb in fine dining.

TDn2K vs Census Bureau

The lead-in Census Bureau chart from Fred shows year-over-year sale, not seasonally adjusted.

Here is a month-over-month comparison.

We can directly compare the January restaurant numbers to those of TDn2K when the Census Bureau releases the January numbers on February 14.

Rosy Outlook?

I believe Naroff has things wrong for many reasons.

  • The savings rate has plunged. People need a wage increase just to maintain current levels of spending.
  • The wage increase was far less than most believe and in fact may be a statistical mirage.
  • If the stock market declines the wealth effect will go negative across the board, especially upscale and business spending.

Macro Picture

Household Spending Projections​

Here's the final kicker: The Fed relies on Consumer Confidence (Conference Board) and Consumer Sentiment (University of Michigan) surveys to predict consumer sales.

The Fed ignores its own survey which shows Household Spending Projections Continue to Slide.

The spending projection trends are very clear.

And what if there is a recession? Everyone acts as if the odds are zero. They aren't.

Mike "Mish" Shedlock

No. 1-16

Last week I took a nice young woman to lunch at the Red Onion in Aspen. She got appetizer tacos, I got a salmon steak with poorly prepared vegetables. Both of us had water to drink. We shared a piece of cheesecake. Total came to about $60 including tip. Yesterday I went to dinner at an Asian restaurant in Grand Junction. My bill came to $25, including tip. Grand Junction ain't Aspen, and I got more food on my plate, but the prices are fairly close to the same. Oh I know I could spend a lot more in Aspen but the Red Onion isn't exactly a "locals' discount" restaurant either.
Seems to me the cost of running a restaurant these days is skyrocketing labor, not food. With the flattening of labor costs due to Obamacare and other non-paycheck compensation it's no wonder people don't eat out anymore. And both meals weren't as good as what I could make myself at home. Heck, one of the early reasons why people might want a home computer was to have a recipe database. Thanks to the Internet you can take an entire culinary course just by searching for a meal recipe.


I've had clients already see the change in their paychecks 2 weeks ago. If the payroll software was updated by their company, they got an increase in take on for the last two weeks of January , too.


I will say it, I think it is a mirage. In CA the rents for most people went up 10% in Jan, mine was 15%. The cost of Fast Food is now equal to a meal in a restaurant, non-chain, unless you order from the value menu. So any increase in pay has already been offset. At this point I am waiting for Food prices to rise as the minimum wage in CA also goes up again, weather related as cold tends to reduce availability.


The payroll tax adjustments were not made in January, the increases in take home pay will be seen in February.

Mike Mish Shedlock
Mike Mish Shedlock


Klausmkl deleted his absurd comment instead of admitting his mistake