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Consumer spending on dining out has remained flat over the past year despite higher prices due to inflation, but some economic signals indicate that the long awaited slowdown in spending might be upon us.
Inflation has had an enormous effect on the price of dining out over the past four years, according to a new study conducted by Attain. The average dining out transaction was 40% higher in January 2024 than in January 2020, a reflection of the historic inflation rates caused by the Covid pandemic.
But consumers haven’t curtailed their spending on dining out despite the significant cost increases, Attain data shows. The average transaction amounts and trip frequency for fast food and restaurant locations have remained mostly flat over the past three years. That includes the first half of 2024.
That is, spending quickly increased with the onset of inflation, and has stayed at that higher plateau since.
This continued spending has confounded many economists who assumed spending to naturally decrease in response to higher prices. Indeed, the Federal Reserve has increased interest rates with the hope of causing that exact reaction, and yet dining out spending has remained stubbornly stagnant.
The data reflects the confounding state of the economy, in which consumer sentiment and economic indicators often don’t line up. The so-called “vibecession” has consumers feeling as though we’re living through rough economic times, even though many macroeconomic factors — employment, consumer spending — appear healthy.
There are signs that the long-awaited reduction in consumer spending might finally be upon us, however. The inflation rate fell to 3 percent in June, down from 3.3 percent in May, the kind of gradual reduction in consumer spending the Fed was looking for.
The Consumer Price Index measures all spending, not just dining, but a reduction in inflation rate would seemingly affect all spending areas, dining included. So it’s likely that, in the ensuing months, that reduction will be reflected in Attain’s forthcoming data reports.
Rick Miller, partner at Big Chalk, an analytics firm covering the CPG industry, says the resilience the restaurant industry has shown may be about to break. Consumers are expected to reduce their number of restaurant trips and spend less on dining out for the remainder of 2024, Miller tells The Outcome.
Dining out is often used as a bellwether for the economy at large. When times are good and people have disposable income, they go out to eat more often. When times are tight and households are more budget conscious, restaurants are one of the first discretionary expenses cut.
Some restaurant prices have climbed even higher in recent weeks due to new laws mandating higher wage minimums for fast food workers, eliciting a pullback in consumer spending.
Continue reading The Outcome in coming months to see how dining out prices, and consumer behavior in general, fluctuates in the second half of 2024.
