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Unemployment Rate: Grabbing at Straws?

December 13, 2009 By: Donna Hood Crecca


Everyone is watching for signs that economic recovery is real, and for those of us in hospitality, the unemployment rate is an important indicator. It’s logical: the more people working, the more people with disposable income and the confidence to spend. The Bureau of Labor Statistics recently released its Employment Situation report for November, citing a slight decline in unemployment to 10.0 percent, the first such shift since a small slip in the spring. While that is good news, and we’ll take all the good news we can right now, some of my recent exchanges with industry leaders revealed it’s important to understand the numbers behind the numbers.

“I was happy to see the decrease, but for the past few months they have always restated the rate later. In addition, this rate does not include the hundreds of thousands of people who have stopped looking for work,” says Stan Novack, a long-time executive with HMS Host who now heads Novack Consulting LLC in Miami. “If you look behind the numbers, the Fed has doubt about the sustainability of the recovery. The result is that they don’t expect the unemployment rate to come down quickly. The Fed is also concerned about the timing of withdrawal of the monetary stimulus. What will happen to the economy when they do this?”

David Henkes, vice president and on-premise practice leader at Technomic Inc. in Chicago, agrees that one needs to look deeper at the economic indicators to gain real perspective. “It's interesting to see the unemployment rate drop while job losses continue. The number of long-term unemployed is extremely high and many have ‘dropped out’ of the work force, meaning they're not counted in the unemployment number.”

That said, Henkes says he agrees that employment is a big driver of the restaurant industry. He pointed to information from the Blue Chip Economic Indicator, which has 81 percent of economists surveyed saying they don’t expect unemployment to dip below 7 percent until Q3 of 2012.

Tracy Finklang, corporate beverage manager for Louisville, Colo.-based Rock Bottom Restaurants, was more optimistic about the immediate future. “I see this as a trend toward a better economy. Whether [the slight improvement in unemployment] is tied to the holiday or not, an increase in holiday hiring indicates that there is a comeback anticipated, that there will be an increase in shopping, something tied to an improving economy,” she muses. “I think we, as an economy and an industry, have hit bottom and are on our way back up. Even if the unemployment rate fluctuates, and maybe even increases a bit, the trend is toward a lessening of the recession, an avoidance of a depression and a bounce in optimism and consumer confidence that will start to show solid signs of improvement by June 2010.”

The restaurant industry may be recession-proof, but it’s not depression-proof, Finklang reasons. “As consumers, we can all live without eating out if our survival depends on it.  But as the depression fades away and the recession starts to ease, coupled with the zero-inflation and screaming deals and bundles at most major chains, yes, the recovery of the hospitality industry will track unemployment at the minimum and exceed the recovery in a best case scenario.”

That discounting, however, must be managed carefully, cautions Novack, or the restaurant industry will suffer the same fate as many retail segments. “It appears that the only thing driving traffic is the discounting that restaurants are currently doing. What does this say to the consumer? Once the economy recovers, will people only go to restaurants when they offer ‘deals?’ That’s what happened to the department stores,” he reasons. “They trained their customers to only shop when there are sales.  Therefore, there are always sales and discounting.”

Well, as someone who’s burned out my Macy’s card this holiday season and never once paid full retail price for anything purchased, I know I’m well-trained in that regard. And, yes, I’ve availed myself of the many dining deals out there lately, and have enjoyed continuing to dine out while spending less per visit. So where does that leave the restaurant industry? Where it always has been: a highly competitive one in which the strong and smart grow and survive.

Here’s to a successful holiday season and a prosperous New Year! See you again in 2010!

Regards,
Donna Hood Crecca
Editorial Director
dcrecca@questex.com


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