1b9a9e2 Black Box Intelligence (formerly TDn2K)’s “State of the Industry” quarterly member webinars feature a special industry guest to share their insights and prediction about the restaurant industry. On July 16th our Q2 webinar will be joined by Joel L. Naroff, President and Chief Economist at Naroff Economic Advisors; a strategic economic consulting firm that advises corporations and financial institutions on the risk and opportunities economic developments can have on the organization’s operating environment.

We had a chance to sit down with Joel to discuss current economic trends. This is what Joel had to say….

Q: We are seeing good employment reports and the labor market heating up, yet GDP is struggling. Employment is generally a lagging indicator, but wouldn’t we expect to see these move in tandem? What can we expect on both fronts? Will hiring slow if GDP continues to underwhelm? What does this mean for unemployment?

A: The first quarter decline in economic activity was due to temporary factors that will not be repeated in the quarters to come. Inventories grew too rapidly at the end of 2013, hyping growth then but when those stocks were worked off, it slowed growth. The winter also restrained consumer spending and possibly even exports. Given the “odd” first quarter growth rate, expect the second quarter to be strong and growth to accelerate during the second half of the year.

Despite the fact that hiring is a lagging indicator, in the current economy, it is also a good measure of economic optimism. Businesses have been hiring cautiously and the recent surge in payrolls is not only a signal that the economy is currently growing faster but an indication that companies believe that demand will continue to expand strongly in the future. Job growth should remain strong and the unemployment rate should keep falling going forward.

Q: Energy prices are rising due to global unrest. What does that mean for commodity prices? Will we see increasing menu prices as a result?

A: While energy prices are rising because of “geopolitical risks” from the unrest in the Middle East, the impact is expected to be limited. In Iraq, the one place where supply is at risk, both sides seem to want the oil to continue flowing to support their own financial needs. The more important trend in commodity prices is income growth in the United States and Asia. Asia’s growing demand for higher quality food products will continue to put pressure on food costs for an extended period of time. If the U.S. economy accelerates, as expected, rising demand should push up commodity prices. That should either pressure margins or menu prices – or likely both.

Q: Some people think the stock market is ready to turn bearish. How will that affect the economy and sentiment of consumers?

A: Main Street and Wall Street have been largely de-linked. Right now, income growth is much more important to consumer confidence than stock prices. Also, investors have become more accepting of market corrections, as long as they are orderly and not excessive. Thus, a “normal” 10%-15% correction in the stock market is not likely to spook people.

Q: We are adding jobs in the restaurant industry and the economy is adding jobs overall. What are your views on the battles being waged to increase wages in the service sector?

A: Wage gains are a two-edged sword. On one side, it increases costs. On the other, it can raise productivity by improving worker perceptions about the job and increasing retention rates. The move by some large retailers to improve wages or benefits is an attempt to limit turnover and by doing that, increase productivity and actually lower costs.

Q: Is there really such a thing as a “skills” gap as it pertains to restaurant jobs?

A: The question really is: “Given wage levels, can we attract enough workers with the needed skills?” Economists always remind business owners that there are two sides to the labor market: The demand or hiring side, which the employer determines according to needs, and the supply side, which is determined by the willingness of workers to take a job at a given wage. While increasing wages may not end the perceived “skills gap”, it is likely to reduce it.

Find out more about Mr. Naroff and Naroff Economic Advisors by visiting their website. If you are a member and interested in attending the webinar or have any questions, please email Sarah Atkinson [sarah.atkinson@tdn2k.com]