Buried in the most recent nonfarm payroll report was a piece of data suggesting that the economic recovery may finally be spreading to the lower end of the economy. In February, the economy added more than 23,000 jobs in "retail trade," almost precisely reversing the jobs lost in that space in 2012.
Economists like David Rosenberg make the case that the hiring is masking weak revenues at the restaurants. Rosenberg argues that a .7% decline on the topline in February coupled with weak sales in January are signalling an economic downdraft, as was the case in 2008.
Jeff Saut, chief investment strategist at Raymond James, disagrees. In the attached clip Saut joined Breakout to explain why the hiring activity of casual dining establishments is one of his favorite tells for the economy. "If you travel around the country, as I do, the restaurants are full," Saut tells me in the attached video. "That's not the kind of thing you see going into a recession."
Casual dining offers, perhaps, the least bang for the buck in the consumer universe. A Clubhouse sandwich at Applebee's consists of ham, turkey, bacon, cheese and mayo, and retails for $10. The same sandwich can be had at home for a quarter of that price, with the advantage of not coming in a portion the size of an infant's head.
Applebee's is a perfectly fine place to eat, but no one scrimps and saves to go there. If the place is full, it means folks have disposable income. If gas prices rising nearly 10% in February and the expiration of the payroll tax cut was killing the low-end consumer, your local diner would be empty.
One-off data points are easy. Saut gives us a few more. He sees bidding wars for houses in St. Petersburg, Fla., spec homes are being built and cars are getting sold at the greatest clip in years. Yes, lower rates are part of the equation, but any sort of tangible growth is a step up from where the economy has been.
Expectations are still relatively low for both earnings growth and stocks as a whole, however Saut begs to differ. Consumers aren't just kicking the tires at car dealerships or sniffing around for house foreclosures, they're showing up ready to make a purchase. That's a huge difference from what we've seen in the myriad head fake recoveries of the last five years. Good investing requires paying heed to such changes on the margins of an economy.
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