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Economic Report: Strong spending at restaurants gives no sign of recession

One of the first things Americans do when the economy falls into a funk is to eat out less and cook at home more. But that’s not what they’re doing right now.

Sales at bars and restaurants increased 1.6% in October, rising for the eighth time in the past nine months. Spending also rose again, to an all-time high.

And the increased amount of money being spent on food prepared outside the home is not the result of inflated prices. Far from it.

Restaurant sales are up 14% in the past year, almost twice the 7.7% increase in inflation over the same span. And many large restaurant chains are reporting strong results.

By contrast, sales at grocery stores have flattened out over the past year and are merely keeping pace with inflation.

In short, Americans are ordering takeout and dining out more than ever.

That’s not supposed to happen when the economy slows and a recession appears to be on the horizon. Most economists predict a recession could hit next year because of rapidly rising U.S. interest rates.

The Federal Reserve is jacking up those rates to try to reduce demand for goods and services and thereby bring down high inflation.

When higher borrowing costs cause the economy to slow, consumers typically cut back on spending. Businesses then usually lower prices to try to drum up sales and also resort to more layoffs, since they don’t need as many workers when demand is lower.

The current strong spending at bars and restaurants suggests to some analysts that the economy has staying power. They point to extra household savings built up during the pandemic and a strong labor market that’s keeping people working.

“Consumers — the biggest engine of the U.S. economy — are still holding up,” said economist Priscilla Thiagamoorthy of BMO Capital Markets.

If Americans keep spending, economists say, that could help prevent the economy from slipping into recession. Rising sales enable companies to avoid layoffs and keep the growth engine going.

Other economists, however, point out that Americans appear to be dipping into their savings to support their spending habits, a trend that cannot go on forever.

A new Fed study, for instance, found that household debt has climbed 8.3% in the past year — the biggest increase since the 2007-2009 recession.

“That may eventually spell economic trouble,” economists Shannon Seery and Tim Quinlan of Wells Fargo wrote in a report to clients.

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