Institute for Supply Management Factory Index (ISM), (NAPM, Graph)

The Institute for Supply Management factory index (ISM)index rose to 52.9% in August, the first time the index has been above 50% since the early days of the recession in January 2008.



"The year-and-a-half decline in manufacturing output has come to an end, as 11 of 18 manufacturing industries are reporting growth when comparing August to July. While this is certainly a positive occurrence, we have to keep in mind that it is the beginning of a new cycle and that all industries are not yet participating in the growth. The August index of 52.9 percent is the highest since June 2007. The 4 percentage point increase was driven by significant strength in the New Orders Index, which is up 9.6 points to 64.9 percent, the highest since December 2004. The growth appears sustainable in the short term, as inventories have been reduced for 40 consecutive months and supply chains will have to re-stock to meet this new demand."

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WHAT RESPONDENTS ARE SAYING ...

• "Production is picking up as demand [for] orders is being accelerated." (Nonmetallic Mineral Products)
• "Demand from automotive manufacturers increasing thanks to 'Cash for Clunkers.'" (Fabricated Metal Products)
• "In addition to improved business come the complications of a supply chain drained of inventory." (Paper Products)
• "The sudden increase in customer demand, plus the low inventories held at services centers, is causing a shortage in the supply of raw steel." (Transportation Equipment)
• "[It] appears customers' inventories are getting low, and they are cautiously placing orders." (Apparel, Leather & Allied Products)

PMI

Manufacturing's 18 consecutive months of decline ended in August as the PMI registered 52.9 percent, which is 4 percentage points higher than the 48.9 percent reported in July. This is the highest reading since June 2007, when the index also registered 52.9 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI in excess of 41.2 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the PMI indicates growth for the fourth consecutive month in the overall economy, as well as expansion in the manufacturing sector for the first time since January 2008. Ore stated, "The past relationship between the PMI and the overall economy indicates that the average PMI for January through August (42.2 percent) corresponds to a 0.3 percent increase in real gross domestic product (GDP). However, if the PMI for August (52.9 percent) is annualized, it corresponds to a 3.7 percent increase in real GDP annually."

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Unemployment A Picture Worth a Thousand Words (Graph)

Civilian Unemployment Rate (Percent).

You tell me. Glass half full, glass half empty?

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National Association of Purchasing Managers Report (Graph)

Economic activity in the manufacturing sector failed to grow in July for the 18th consecutive month, while the overall economy grew for the third consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business®.



The current index is 48.9 versus 44.8 in June. An increase of 4.1 percent.

A PMI reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent that it is generally declining. Institute for Supply Management

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Total Business Inventories, Sales and Ratio (Graph)

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The combined value of distributive trade sales and manufacturers' shipments for May, adjusted for seasonal and trading-day differences but not for price changes, was estimated at $966.1 billion, down 0.1 percent from April 2009 and down 17.8 percent from May 2008.

Manufacturers' and trade inventories, adjusted for seasonal variations but not for price changes, were estimated at an end-of-month level of $1,368.1 billion, down 1.0 percent from April 2009 and down 8.0 percent from May 2008.

The total business inventories/sales ratio based on seasonally adjusted data at the end of May was 1.42. The May 2008 ratio was 1.27.



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ISM Non-Manufacturing Business Activity Index Drops (Graph)

The series below, the NMI Business Activity Index, shows a different picture of the economy than the more popular and more widely publicized NMI (Non-Manufacturing Index). The NMI rose .3 of a percent to 44. The BSI registered a 2.8 percent drop.

Business Activity

ISM's Non-Manufacturing Business Activity Index in May registered 42.4 percent, a decrease of 2.8 percentage points when compared to the 45.2 percent registered in April. Six industries reported increased business activity, and 10 industries reported decreased activity for the month of May. Two industries reported no change from April. Comments from respondents include: "Many initiatives and plans on hold"; and "Delay in start date of new client projects."

The industries reporting growth of business activity in May — listed in order — are:

• Real Estate, Rental & Leasing; Utilities; Construction; Retail Trade; Arts, Entertainment & Recreation; and Accommodation & Food Services.
  
• The industries reporting decreased business activity in May — listed in order — are: Mining; Other Services; Agriculture, Forestry, Fishing & Hunting; Health Care & Social Assistance; Finance & Insurance; Educational Services; Wholesale Trade; Transportation & Warehousing; Professional, Scientific & Technical Services; and Public Administration.

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Restaurants running on empty

I moved to south Florida five years ago. The real estate frenzy was just starting to catch some real momentum. The gym's were loaded with 25 year old "real estate magnets". A new Donald Trump was being born every day. They all thought the streets were lined with gold and all you had to do was pick up the bricks. By 2005, I remember thinking to myself this is going to end ugly. It did. But, beyond my wildest nightmares. Down here in Florida, good restaurants often look like bad restaurants. Half empty or worse. It is really hard to imagine until you see it with your own eyes. In California looks like the same story; or, so I read.

"I eat at home more. I pack my lunch. I cut out Starbucks, and when I do go to a Burger King or McDonald's I get the 99-cent burger," Rubi said.

"When you look at what some of these brands are doing to stay profitable, closing money-losing stores is going to be the next shoe to drop," said Brian Moore, a restaurant industry analyst with Wedbush Morgan Securities in Los Angeles.

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Cost-conscious customers wreaking havoc on ailing restaurants

Pricey entrees, appetizers, desserts and alcohol are now a no-no for many who dine out. Eateries that already have shrunk portions, cut staff and closed unprofitable stores might not survive.

By Jerry Hirsch

From the corner diner to elegant Westside eateries, restaurants in Southern California are shrinking portions, slashing wine prices, cutting employee hours and reducing staff. Some chain restaurants and fast-food purveyors are shutting unprofitable branches, and experts say some may not survive.

Many large dinner-house chains are reporting some of the largest drops in same-store sales -- an important measure of a retailer's financial health -- in recent history.

After the stock market closed Thursday, Southern California chains Cheesecake Factory Inc. and California Pizza Kitchen Inc. both reported plunging same-store sales and profits.

"It is a very tough environment out there," said Richard Rosenfield, co-chief executive of CPK.

Not long ago, accountant John Rubi would join his work buddies for lunch at a Chili's Grill & Bar in Foothill Ranch on Monday and move on to a nearby Daphne's Greek Cafe the next day. They wouldn't give a second thought about checking out an Asian eatery later in the week. After work, the Aliso Viejo resident would take his girlfriend to dinner at Mama D's Italian in Manhattan Beach and spend $70 to $100, depending on the wine.

No more. Rubi lost his job in the auto-lending division of an Orange County financial institution last year and now works for a different firm in a lower-paid accounting position.

"I eat at home more. I pack my lunch. I cut out Starbucks, and when I do go to a Burger King or McDonald's I get the 99-cent burger," Rubi said.

Parsimonious consumers are why even once hot brands such as Starbucks and Pinkberry are closing restaurants. Experts see more ahead.

"When you look at what some of these brands are doing to stay profitable, closing money-losing stores is going to be the next shoe to drop," said Brian Moore, a restaurant industry analyst with Wedbush Morgan Securities in Los Angeles.

Last month ARG Enterprises Inc., the Los Altos, Calif., owner of 69 Black Angus Steakhouse restaurants, filed for protection from its creditors in U.S. Bankruptcy Court and said it would seek a buyer.

Other franchisees of major chains also have filed for bankruptcy, and more failures are expected.

"There is going to be a shakeout in this industry," Rosenfield said. "It is going to get worse before it gets better."

Restaurant traffic is expected to fall this year at least 1%, and the casual dining segment -- which includes chains such as CPK, Chili's and P.F. Chang's China Bistro -- could have its worst year in several decades, said Bonnie Riggs, a restaurant industry analyst with NPD Group in Chicago.

Cheesecake Factory said its revenue fell 1.5% to $400 million in its fourth quarter ended Dec. 30, compared with the same period in 2007. Same-store sales decreased 7.1%, and company profit plunged 47% to $7.1 million. Shares of the Calabasas Hills company fell 7% to around $9 in after-hours trading.

CPK said its revenue decreased 0.7% to $161.8 million in its fourth quarter ended Dec. 28. Same-store sales slid 7.2%. CPK lost $5.3 million in the quarter, compared with a profit of $3.5 million in the year-earlier period. Shares of the Los Angeles chain were unchanged in after-hours trading after rising 23 cents to $10.98 earlier in the day.

People are eating out less -- and when they do visit a restaurant, they are taking a minimalist approach.

Customers are ordering entrees but skipping appetizers and desserts, Riggs said. Some surveys show that fewer people are ordering drinks and alcoholic beverages with their meals. Many are trading down, substituting chicken entrees for steaks or other more expensive meals. Others, meanwhile, are forgoing sit-down restaurants for fast-food establishments, taking advantage of the $5 foot-long sandwich special at Subway or the Jack in the Box "Jumbo Deal" offer of a Jumbo Jack, two tacos and a small order of natural-cut fries for $2.99.

"People are looking for more calories per dollar," said Harry Balzer, also an analyst at NPD Group.

That's certainly the way Rubi is operating. Dinner out with his girlfriend is far less frequent, and when they do go, the check rarely tops $25. Rubi stays on the lookout for promotions and special deals such as the free meal that Denny's advertised during the Super Bowl broadcast.

Sure enough, Rubi and a friend made a point of visiting the chain the Tuesday after the big game to eat a free Grand Slam breakfast.

Patrick Robbers, a Christian minister who lives near downtown Los Angeles, still takes his family of four to the Olive Garden and Red Lobster "because they have good deals" but has cut "more expensive culinary" restaurants from his budget.

To be sure, companies are still opening new restaurants. In the last few months, about a dozen opened in downtown Los Angeles -- including eight at the L.A. Live entertainment center. But the overall number of restaurants in the U.S. is declining slightly and stands at about 575,000, according to NPD Group.

Brinker International Inc., the owner of the Chili's, On the Border Mexican Grill & Cantina and Maggiano's Little Italy chains, is bracing for a rough year, Douglas Brooks, the company's chief executive, warned investors during a recent conference call.

"Brinker and the entire restaurant industry remain challenged by a highly competitive environment and an uncertain economy," Brooks said.

The Dallas company is moving to close nearly three dozen underperforming locations, and last year it sold its Romano's Macaroni Grill division to focus on the three other brands. But even excluding Macaroni Grill, Brinker's comparable-restaurant sales fell 4.5% in its second quarter ended Dec. 24.

Denny's Corp., headquartered in Spartanburg, S.C., said same-store sales at its company-owned and franchised restaurants dropped a combined 6.1% in its fourth quarter ended Dec. 31. Guest counts fell 7.5%.

Even fast-food chains aren't immune. CKE Restaurants Inc. of Carpinteria said same-store sales at Carl's Jr. fell 0.6% in its fourth quarter ended Jan. 26, compared with a 1.4% gain in the same quarter in 2008.

"A decline in consumer spending combined with our competitors' deep discounting strategies has impacted sales," said Andrew Puzder, CKE's chief executive.

"We have declined to engage in such deep discounting to maintain our premium quality food positioning and our profitability."

Even when the economy starts to improve, it's not clear how quickly consumers will give up their newfound penny-pinching habits.

"It wouldn't be enjoyable to go out and spend $100 on a meal," said Rubi, the Aliso Viejo accountant, "because I would be worrying about the money."

jerry.hirsch@latimes.com