SHI 7/26/17: Food for Thought

SHI Update 7/19/17: Lend Me Money!
July 19, 2017
SHI 8/2/17: Where’s the Beef?
August 2, 2017

Steakonomics, and our steak-centric SH index, are both close cousins of the Big Mac index started by ‘The Economist’ magazine many years ago.

 

So I was thrilled to see a burgernomics update just a few days ago:  https://www.economist.com/news/finance-and-economics/21725034-dollar-has-slipped-over-past-six-months-still-looks-dear-big-mac

And The Economist magazine didn’t stop there!   The following week, they published an article entitled “In America, you are what you eat.”  Clearly no further proof is necessary:  Food and economics are closely aligned! 🙂

 

Welcome to this week’s Steak House Index update.

 

As always, if you need a refresher on the SHI, or its objective and methodology, I suggest you open and read the original BLOG:  https://terryliebman.wordpress.com/2016/03/02/move-over-big-mac-index-here-comes-the-steak-house-index/)


Why You Should Care:   The US economy and US dollar are the bedrock of the world’s economy.   Is it expanding or contracting?

The world’s GDP is about $76 trillion.   Our US GDP is almost $19 trillion — about 25% of  the total.  No other country is even close. 

The objective of the SHI is simple: To help us predict US GDP movement ahead of official economic releases — important since BEA data is outdated the day they release it.

‘Personal consumption expenditures,’ or PCE, is the single largest component of US GDP. In fact, the majority of all US GDP increases (or declines) usually result from (increases or decreases in) consumer spending.  Thus, this is clearly an important metric to track.   The Steak House Index focuses right here … right on the “consumer spending” metric.

I intend the SHI is to be predictive, anticipating where the economy is going – not where it’s been. Thereby giving us the ability to take action early.  Not when it’s too late.


Taking action: Keep up with this weekly BLOG update.

If the SHI index moves appreciably -– either showing massive improvement or significant declines –- indicating expanding economic strength or a potential recession, we’ll discuss possible actions at that time.


The BLOG:

Last week I promised a bit more “hard data” in this week’s blog.   Sorry but you’ll have to wait another week.   The FED, too, earlier today said we’ll have to wait for another rate increase.

In the interim, let’s sink our teeth into a much more tasty topic:  Food!  In their article entitled “In America, you are what you eat”  The Economist magazine is once again moving our focus to food:  https://www.economist.com/blogs/graphicdetail/2017/07/daily-chart-12

It’s interesting to see that American eating habits/choices are impacted by education levels — at least according to a YouGov poll of 1,500 American adults.   Take a look:

I’m sure you sushi-lovers out there will agree with me:   I find it amazing that about 75% of the folks with a high-school education (or less) have not had sushi in the past year!    Outrageous right!?!   I think our conclusion here is simple:  We clearly need to add a “sushi appreciation” class to the American high-school curriculum.

But perhaps the issue is more finance-driven than we might conclude at first glance.   The chart below supports this thought:

Clearly, the decision to “eat out” is less driven by education and more driven by income.   Folks making $100,000 a year or more tend to eat out more.   Makes sense.  Eating out is expensive.   And few dining out options are more expensive than the extravagant eateries we track with our SHI.   Affording a $600 steak-and-potato dinner for 4 on Saturday night requires either a healthy bank account or a high-limit credit card.   So it comes as no surprise that this week, once again, the SHI reading is rather low:

This week last year, the SHI was a negative -4.  Today, our reading is a negative -16.  Once again, Morton’s is completely available this Saturday — significantly different than last year at this time.   Ruth’s Chris has only one booked time slot.   Here is our longer-term trend analysis:

The trend is clear:  The SHI — this year — is far weaker than last year.   For the past 3 weeks, the numeric difference has been consistent at or around 12-14 points.   Clearly, right now fewer of our local well-heeled, deep-pocketed folks are willing to spend the $600 or so needed.    The FED, in their press release earlier today, seems to agree with this general assessment.   In economic parlance, today’s decision and statements were rather “dovish”.

Here are two of their released comments and my interpretation:

  • “The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.”

Interpretation:   The FED will not raise rates again this year.   And their decision to raise rates in the future will continue to be highly reliant on, and driven by, actual future economic conditions as they become known.

  • “For the time being, the Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction.”

Interpretation:   This statement, in my opinion, is FAR more dovish than FED statements from the past few months.   For months now, Janet Yellen and her associates have talked about shrinking the FED balance sheet.   Reinvesting principal does not shrink the $4.5 trillion balance sheet — it maintains that size.

I stand by my prior prediction:   While Q2 GDP growth is likely to be close to 2%, I feel Q3 will be much lower.   The SHI continues to forecast  a weak GDP growth figure.

  • Terry Liebman

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