July cooked any optimism the restaurant industry might have felt from a promising June. Same-store sales dropped 2.8 percent across the landscape, a significant 1.8 percentage point decline from the previous month, when traffic and sales reached their best marks since 2016.

Traffic plummeted 4.7 percent in the month—1.7 percentage points worse than June.

“July proved to be a tough month for chain restaurants,” says Victor Fernandez, executive director of Insights and Knowledge for industry tracker TDn2K, in a statement. “Based on recent trends, we were cautiously optimistic that the tide was turning a bit, especially since brands were comparing against weaker comps in 2016.”

Calculated on a two-year basis, July’s sales were down 4.2 percent versus July 2015, and same-store traffic declined an eye-opening 8.7 percent. These are the weakest two-year growth rates in more than three years.

TDn2K, which gathers sales and traffic results from more than 193 DMAs representing 120-plus restaurant brands and over 22,000 units, called the results “disappointing” given the 1.3 percent average comp sales drop in the first six months of the year and 1.6 percent fall in the back half of 2016. In June, shreds of optimism crept in as same-store sales decreased just 1 percent and traffic fell 3.1 percent in the second quarter, up 0.6 percent from the first.

July punched a hole in the progress. Fast casual and quick service sales remained soft, adding to the decline. “While much of fast casual’s headwinds are a result of rapid segment growth, the steady performance decline in lower PPA segments will be important to follow. Both segments outperformed the industry in 2015 and 2016, but trail through July of this year,” TDn2K said.

Meanwhile, fine dining and upscale casual continued to outperform other segments. Fine dining was the only segment in the green in July at 0.4 percent.

One of the key factors in decreased traffic—rising average guest check—remains fluid. TDn2K showed that check growth is slowing as brands begin to take notice. Check increases in 2015 and 2016, it says, were largely an effort to maintain margins in the face of higher labor costs.

“The slowdown in check growth may be a combination of value platforms and increased deal activity aimed at increasing visitation frequency. It may also be recognition that top-line increases are under more scrutiny despite the potential impact to operating margins. Given that grocery prices have been dropping year over year, it is no surprise that restaurants have been compelled to review their value proposition,” the report said.

But this labor and commodity equation continues to stifle brands. In a recent earnings release, Jack in the Box, Inc., which operates its eponymous fast food concept and Mexican chain Qdoba, struggled with higher labor, repairs and maintenance, and the return of commodity inflation. Wage inflation also struck a blow.

Consolidated restaurant operating margin decreased by 380 basis points to 18.1 percent of sales in the third quarter, compared with 21.9 percent of sales in the year-ago quarter. Restaurant operating margin for Jack in the Box company restaurants decreased 320 basis points to 19.3 percent of sales.

This was true for 558-unit full-service chain Red Robin as well. Despite same-store sales growth of 0.5 percent versus the prior year period, the brand reported a loss of profit as net income came in at $6.9 million compared to $7.6 million year-over-year.

“ … the top-line and traffic growth momentum is still not enough with labor cost rising 6 percent or more,” she said. “We must control what we can control, and our priority for margin improvement is on rethinking how we invest in labor,” CEO Denny Marie Post said in a conference call, adding that the company piloted six labor platforms to soften the impact.

On this note, TDn2K’s People Report Workforce Index showed 63 percent of companies reported an increase in difficulty recruiting qualified employees to staff their restaurants in the second quarter of 2016.

“Additionally, the expectations component of the index predicts continued job growth for the industry, with 47 percent of restaurant companies anticipating an increase in their number of hourly jobs. Forty-two percent reported an expected increase in their net number of restaurant management jobs,” the report said.

Restaurant management and hourly employee turnover increased in June as well.

TDn2K credited some of the overall downturn to the vacation-minded consumer.

“While the economy keeps growing at a moderate pace and job gains remain strong, the consumer seems to be on vacation—literally and figuratively,” says Joel Naroff, president of Naroff Economic Advisors and TDn2K economist, in a statement. “One of the clearest indicators that households are spending cautiously is the softening of big-ticket purchases. In July, for the eleventh month out of the last twelve, vehicle sales were below the rate posted the year before. Home sales, while still trending up, are now expanding at a decelerating pace.”

“It is likely that consumption will improve, as confidence seems to have stabilized and income growth is improving,” he adds “But households are currently maintaining their lifestyles by reducing their savings rate and that is likely restraining spending on discretionary goods. We may have to wait until the fall or early winter, assuming wage gains accelerate by then, to see any pick up in restaurant sales.”