Experts Predict a Restaurant Recession

© Ingo Jezierski / Getty Images

By Gillie Houston Posted July 27, 2016

And the rest of the economy could follow.

Recent economic assessments hint at bad news for the restaurant industry. A group of analysts argue that the food service sector is heading toward a recession—so what does that mean for the rest of the economy?

According to Business Insider, this week investment banking firm Stifel made a call to investors in which it indicated an anticipated downturn in restaurant sales. And apparently as the restaurant industry goes, so goes the larger economy. Because the way consumers spend at restaurants typically reflects how they are spending on all consumer goods, restaurant trends have often been reflective or predictive of what else is going on in the financial world.

According to Stifel's report, the 1.5-2 percent "deceleration of restaurant industry comps across all categories" during their second quarter of 2016 "reflects the start of a U.S. Restaurant Recession—which may also represent a harbinger to a U.S. recession in early 2017." The firm also points out that "Restaurants have historically led the marker lower during the 3-to-6-month periods prior to the start of the prior three U.S. recessions." In a nutshell: When restaurants start to go down, the rest of the economy probably isn't too far along.

Stifel even goes so far as to call restaurant industry sales the "Canary that Lays the Recession Egg," and says that the current decline in sales is likely due to a number of factors, including economic uncertainty, the current political state, terrorism, social unrest, and more. Due to this gloomy outlook for restaurants, Stifel anticipates a 20 percent drop in restaurant stocks over the next half of 2016, which would reflect similar stock declines following the previous recessions in the United States.

Though restaurant sales boomed over 2015 due to lower gas prices and higher economic confidence, but Stifel warns that one day soon restaurant business will start plummeting and maybe, just maybe, the rest of the economy will go with it.

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