Bolstered by solid improvements in same-store sales and customer traffic levels, the outlook for the restaurant industry continued to strengthen in March. 

The National Restaurant Association’s Restaurant Performance Index (RPI)—a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry—stood at 101.0 in March, up 0.3 percent from February and the third gain in the last four months. 

In addition, March represented the sixth time in the last seven months that the RPI stood above 100, which signifies expansion in the index of key industry indicators.

“The March increase in the Restaurant Performance Index was fueled by continued improvements in the same-store sales and customer traffic indicators,” says Hudson Riehle, senior vice president of the research and knowledge group for the association.

Most notably, he points out, the overall Current Situation component of the RPI stood above 100 for the first time in 43 months, which signifies expansion in the indicators of current industry performance.

“Although restaurant operators remain bullish about their business’ sales growth in the months ahead, their optimism about the direction of the overall economy has faded somewhat,” Riehle adds. “Just 32 percent of restaurant operators expect economic conditions to improve in the next six months, the lowest level since September 2010.”

The RPI is constructed so that the health of the restaurant industry is measured in relation to a steady-state level of 100.  Index values above 100 indicate that key industry indicators are in a period of expansion, and index values below 100 represent a period of contraction for key industry indicators.  The RPI consists of two components, the Current Situation Index and the Expectations Index.

The Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor and capital expenditures), stood at 100.2 in March—up 0.8 percent from February and its third strong gain in the last four months.  In addition, the Current Situation Index rose above 100 for the first time in 43 months, which signifies expansion in the current situation indicators. 

Restaurant operators continued to report improvements in same-store sales in March.  Fifty-two percent of restaurant operators reported a same-store sales gain between March 2010 and March 2011, up from 49 percent in February and the strongest level since August 2007.  In comparison, 31 percent of operators reported a same-store sales decline in March, down from 37 percent of operators who reported lower sales in February.   

Restaurant operators also reported a net increase in customer traffic levels in March.  Forty-five percent of restaurant operators reported an increase in customer traffic between March 2010 and March 2011, up from 41 percent of operators who reported higher traffic in February.  In comparison, 32 percent of operators reported a traffic decline in March, down from 39 percent in February.

Capital spending activity among restaurant operators held relatively constant in recent months.  Forty percent of operators said they made a capital expenditure for equipment, expansion or remodeling during the last three months, essentially unchanged from the levels reported in the previous four months.

The Expectations Index, which measures restaurant operators’ six-month outlook for four industry indicators (same-store sales, employees, capital expenditures and business conditions), stood at 101.7 in March—down slightly from February’s level of 101.9.  Despite the decline, the Expectations Index stood above the 100 level for the eighth consecutive month, which signifies expansion in the forward-looking indicators.   

Restaurant operators remain optimistic that their sales levels will grow in the coming months.  Fifty percent of restaurant operators expect to have higher sales in six months (compared to the same period in the previous year), up slightly from 48 percent who reported similarly last month.  In comparison, just 13 percent of restaurant operators expect their sales volume in six months to be lower than it was during the same period in the previous year, compared with 12 percent who reported similarly last month.

Along with an optimistic sales outlook, restaurant operators’ plans for capital spending rose to its highest level in 41 months.  Fifty-three percent of restaurant operators plan to make a capital expenditure for equipment, expansion or remodeling in the next six months, up slightly from 52 percent who reported similarly last month. 

For the sixth consecutive month, restaurant operators reported a positive outlook for staffing gains in the months ahead.  Twenty-six percent of restaurant operators plan to increase staffing levels in six months (compared with the same period in the previous year), while just 11 percent said they expect to reduce staffing levels in six months. 

Although restaurant operators remain optimistic about sales growth in the months ahead, their outlook for the overall economy is more tempered.  Thirty-two percent of restaurant operators said they expect economic conditions to improve in six months, down from 46 percent who reported similarly just three months ago and the lowest level in seven months.  In comparison, 19 percent of operators said they expect economic conditions to worsen in the next six months, up from 14 percent who reported similarly last month. 

The RPI is based on the responses to the National Restaurant Association’s Restaurant Industry Tracking Survey, which is fielded monthly among restaurant operators nationwide on a variety of indicators including sales, traffic, labor, and capital expenditures.