Macro Insights

Dr. Dave’s Ag Lending Midyear Report

Dr. Dave’s Ag Lending Midyear Report

Dr. David Kohl stated in a Farmer Mac presentation that our current ag cycle is worse than the 2013 – 2020 “profit desert”. At that time, ag prices declined but operating costs were not inflated, and interest rates were at zero. The current ag cycle is marked by lower prices, higher operating costs & elevated interest rates – “margin compression on steroids”. One banker recently reported about a farmer who lost -$100k despite producing a record corn & bean yield.

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The Game of Inflation Number Rounding

The Game of Inflation Number Rounding

June’s CPI increased +2.97% y/y, representing its best month since March 2021’s +2.61% results. Not a big deal compared to last month’s swings in food commodity prices. In any case, it now looks like the Fed is likely to wait until after the November election to give consumers a badly needed rate cut now that Biden’s re-election chances appear beyond resuscitation.   

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RR’s Promotional Database Analysis for June

RR’s Promotional Database Analysis for June

While FSR players have lowered their average promotional pricing during June (-10% below the LTM average), the June stats for the QSR players show an LTM high average promotional price point even after McDonald’s rolled out its $5 Meal Deal.

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Paychex, Inc 4QFY24: Small & Medium Sized Business Update

Paychex, Inc 4QFY24: Small & Medium Sized Business Update

Paychex reported that small & midsized businesses continue to face a challenging operating environment due to complex regulations, a historically tight labor market & persistent inflationary pressure. The company’s June small business employment survey reveals a generally stable market.

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Retail Sales April 2024

Retail Sales April 2024

April retail sales increased +3.3% y/y, which represented an increase from March’s +1.7% y/y growth. Additionally, the CPI inflation growth rate declined from +3.48% in March to +3.36% in April. Taken together, this looks like an improvement except for the fact that inflation remains elevated from January’s +3.09% reading. Also, we recognize that April’s real (inflation-adjusted) retail spending growth rate was slightly negative. Further, May’s advanced retail sales growth rate is reading a lower +2.3% rate, down from April’s +3.3% reading.

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Retail Companies Best Positioned For Growth

Retail Companies Best Positioned For Growth

We recently discussed how the $1B+ national restaurant chains have been steadily losing share to local independent restaurants by focusing on cost-cutting. The best way to identify growth-minded retail companies is by analyzing how much they are investing in their business (capex/revenue) and how much they are generating on these investments (return on capital). We like the companies that are outperforming on both counts.

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Part 1: Long Covid Diet – Analyzing 2019 to 2023 Food & Alcohol Spend Trends

Part 1: Long Covid Diet – Analyzing 2019 to 2023 Food & Alcohol Spend Trends

Recent data provided by the USDA provides valuable insight into consumer food spending patterns by channel through 2023. Interestingly, the -6.3% y/y decline in total food spend during 2020 was double the -3% decline during the 2009 Great Recession. In any case, 2023 total food spend adjusted for inflation is up +43% since 2009 & up +16% since 2020. Maybe all this stress eating explains the huge demand for the GLP-1 weight loss meds?

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FY24 Consumer Company Outlook

FY24 Consumer Company Outlook

As we are entering fully into 1Q24 earnings season we look at FY24 analyst forecasts for the 80 consumer retail companies under our coverage. While the median revenue growth forecast for the next 12 months (NTM) is just +3.7% (in line with inflation), expectations are for +9.3% EBITDA growth as management teams continue to drive operating efficiencies sufficient to improve margins. This portends well for future top-line growth as more profitable companies are better able to make investments to drive future revenue growth.  

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What’s All This About Part-Time Jobs?

What’s All This About Part-Time Jobs?

Critics of the labor market like to point out that many of the recent job gains have been provided by part-time hustles. However, the percentage of employees working part-time only is at a very low level while the percentage of the U.S. workforce with multiple jobs is growing (albeit still below the level of the Great Recession) as consumers augment their pay to cover inflation. Maybe the economy’s creation of part-time jobs is the perfect thing for the times…  

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