US - Discussions about meat protein demand invariably focus on broader macroeconomic trends and, in that regard, both bulls and bears have something they can highlight to support their view, write Steve Meyer and Len Steiner.
On the bullish side: Q1 GDP growth was revised a bit higher but at a nominal annualized +1.43 per cent expansion still was quite weak, We saw a similar pattern develop last year as well with growth in the first quarter at +0.76 per cent followed by a +6.1 per cent growth in Q2.
Macro economists are now calling for similar robust growth in Q2 of this year based on both spending trends and continued expansion of both the manufacturing and non manufacturing sectors. Wage and income growth is of particular interest to those involved in the food industry as this constitutes a key demand driver.
After all, it is difficult for families and individuals to justify going out to restaurants or buying expensive meat cuts at retail when they don’t have a job or are watching their pennies till the next paycheck. This is not to say there are no problems in the economy. There are still plenty of people struggling to make ends meat. Still, some of the recent economic data argue for demand improvement.
Real per capita disposable incomes in April rose 2.5 per cent from the previous year and in the last six months growth has averaged 2.4 per cent. The current growth rate is now outpacing the trend for 2010-16 and also is above the average growth we observed during 2000-07.
Wage increases and low inflation have been the two factors bolstering real disposable incomes.
Income growth is driving personal expenditures. Real spending in April was reported at a very robust +0.6per cent from the previous month and in the last 12 months it has increased at a monthly rate of 0.22per cent, the fastest growth rate since May 2015.
Interestingly the spending rate outpace income growth in April, leading to a decline in the savings rate. Spending on food and beverages purchased for off-premises consumption was up 0.6per cent in May from the previous month while spending on food services and accommodations was up just 0.1per cent. On the bearish side, consumer sentiment and employment trends show a bit of weakness.
The employment numbers that were released this morning were particularly weak, showing the economy added just 38,000 jobs in May. The consensus estimate was for a 161,000 job gain. While the Verizon worker strike impacted the numbers, lowering employment numbers by 34,000, the overall gain was extremely disappointing.
Moreover, the BLS also revised lower payroll numbers for the previous two months. The labor force also declined thus pushing the unemployment rate down to 4.7 per cent. The labor participation rate had been gaining ground in the last few months, reaching 63 per cent in March.
The May number, however, pegged the labor participation rate at 62.6 per cent. The consumer confidence numbers also have been slipping. A report from the Conference Board pegged the overall consumer confidence index at 92.6 for the month of May, down from 94.7 in April and 96.1 in March. Much of the decline was driven by declines in the index measuring current conditions rather than expectations.
The political season is upon us and that may start having an impact on consumer sentiment. Still the main drivers for that remain equity markets, housing values, energy costs and employment trends.
So in our view the demand picture for the meat industry is a bit muddled. The Restaurant Performance Index seems to illustrate this as well, with extreme volatility from one month to the next. While the foodservice industry continues to expand, the rate of growth has slowed down. It is positive in our view that the customer traffic index is once again showing expansion. Last year growth petered out in the second half of the year. In light of expanding meat supplies, second half improvements are critical for 2016 pricing.
TheCattleSite News Desk