By Marek Fuchs
Gross Domestic Product and key jobs data were reported Thursday and Friday but there's another crucial economic data point that hasn't gotten nearly as much press: hot dogs.
Yes, hot dogs. Perhaps the least noticed morsel of news reported late this week might – upon further review – stand as the most revealing. Friday morning Nathan’s Famous (NATH) reported earnings for its second quarter. Despite its very familiar surname, not enough analysts cover Nathan’s Famous to craft a reputable consensus, and the results were a bitter disappointment to traders – for good reason.
We’ll get to the sordid details in a moment, but first an admonishment: If you are fixated on the 204,000 jobs added in October or 2.8% growth in third quarter GDP, give up the ghost. Between first drafts prone to steep revisions and a well-established pattern of turning rickety one month and a touch promising the next, these figures tend to offer – like so much official data in our nation’s confounding economy – little in the way of guidance.
Enter the hot-dog indicator.
The answer to our economic state?
Are we finally forging our way to a recovery? Or do we sit perched atop the flimsy skin of yet another bubble? The answer to our economic state may lie between the folds of a bun.
After all, Nathan’s, as the company peddling hot dogs on the corner of Surf and Stillwell in Brooklyn since the Woodrow Wilson years is called, makes as American a product as apple pie and anything Apple (AAPL). After being range bound for the better part of a generation – showing feet of clay that would make Microsoft (MSFT) proud – Nathan’s has (pretty much until Friday morning, when it traded as low as $51.12, down well over 4%, before paring losses to close at $52.52) been near peerless.
Last year it was even mentioned alongside Apple as a top performer. The stock, in the words of CNNMoney, was a “wiener.” And that was before 2013, when shares have nearly doubled, a performance so crazy-amazing it calls to mind Joey Chestnut, who ate 66 hot dogs in 12 minutes in the company’s iconic hot-dog eating contest, which now earns coverage on ESPN (DIS).
First up: a caveat the size of Coney Island. The hot-dog indicator may be an idea whose time has come or it just might stand as the unfortunate product of a columnist ingesting more than his share of nitrates.
An edible indicator
But, truly, this edible artifact of Americana might be the indicator we’ve all been waiting for. Yes, when we think macro economy, we should round up all the usual suspects: General Motors (GM) and Merck (MRK), IBM (IBM) and Fedex (FDX), etc. But answers appear where we least expect them. Besides, for several reasons, a through-line can earnestly be drawn from Nathan’s to the economy at large.
With all due respect to a more modern form of cuisine to spring from Brooklyn – such as ramen burgers – hot dogs appeal to both high and low socioeconomic groups. That’s a whole lot more that you can say for products in places such as Tiffany (TIF) or Wal-Mart (WMT). Or ramen burgers.
And not to over-tout the indicator, but Nathan’s is more than just a restaurant near a freak show in Coney Island. It gives us a remarkably good sounding on sales in large-format stores and even those modern cathedrals of public consumption, sports stadiums. Its fast-growing Branded Goods division, which facilitates the sale of crinkle-cut fries and sauerkraut everywhere from Yankee Stadium to Sears (SHLD), accounts for well over half of sales.
Nathan’s might also give us a bead on whether this vaulting stock market, with the Dow Jones Industrial Average and many other indexes at or near highs, might be the product of another bubble.
In fact, for a high-flying stock, Nathan’s is, in some respects, wedged in an even more precarious spot than our dearly departed Internet bubble friends. It has no real Wall Street support, comically thin volume, a market cap so meager it can’t attract much institutional ownership, competition in its larger restaurant and branded-sales business ... yet the stock keeps flying.
Until Friday morning, that is. That’s when earnings finally proved problematic. Little kept pace. Earnings per share came in at 57 cents versus 62 cents in last year’s second quarter. Margins were a mess. From the effects of Superstorm Sandy to construction and beef costs, the excuses kept coming – which is never a good sign.
The hot-dog indicator offers up a primal understanding of the state of the economy. The upshot: It’s as overheated as a mound of red onions.
And even if this indicator proves a false prophet, you’ll find consolation where most of what you watch to get a handle on the economy offers none.
In other words, if you are fed up with the Fed take, take solace in this: At least the hot dog is one indicator you can, if all else fails, eat.
Marek Fuchs was a stockbroker for Shearson Lehman Brothers before becoming a journalist who wrote The New York Times' County Lines column for six years. Fuchs speaks regularly on business and journalism issues at venues ranging from annual meetings of the Society of American Business Editors and Writers to PBS to National Public Radio. His recent book, "Local Heroes: Portraits of American Volunteer Firefighters," earned widespread praise. He is on the writing faculty at Sarah Lawrence College. When Fuchs is not writing or teaching, he serves as a volunteer firefighter. You can contact him on Twitter: @MarekFuchs.