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Fueled by improving sales and traffic levels and growing optimism among restaurant operators, the National Restaurant Association's comprehensive index of restaurant activity rose sharply in March. The association's Restaurant Performance Index (RPI) stood at 100.5 in March, up 1.4 percent from February and its strongest level since September 2007. In addition, the RPI rose above 100 for the first time in 29 months, which signifies expansion in the index of key industry indicators.
"The RPI's solid performance in March was driven by improvements among both the current-situation and forward-looking indicators," said Hudson Riehle, senior vice president of the Research and Knowledge Group for the association in a news release. "Restaurant operators reported net gains in both same-store sales and customer traffic in March, the first time in 31 months that both indicators stood in positive territory."
"In addition, restaurant operators are increasingly optimistic about growth in sales and staffing levels in the months ahead, while their outlook for the economy soared to its strongest level in five years," Riehle added.
The RPI is a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry based on two components, the Current Situation Index and the Expectations Index.
 
Current Situation Index
The Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor and capital expenditures), stood at 99.0 in March – up a solid 2.4 percent from February's level of 96.7.
 
Although the same-store sales and traffic indicators turned positive in March, the labor and capital expenditure indicators continued to lag behind, which led to an overall reading below 100 for the Current Situation Index.
For the first time in 22 months, restaurant operators reported net positive same-store sales. Forty-three percent of restaurant operators reported a same-store sales gain between March 2009 and March 2010, up from 28 percent of operators who reported higher sales in February. In comparison, only 36 percent of operators reported a same-store sales decline in March, well below the 57 percent of operators who reported negative sales in February.
Restaurant operators also reported a net increase in customer traffic in March, the first positive reading in 31 months. Forty-one percent of restaurant operators reported an increase in customer traffic between March 2009 and March 2010, up from 25 percent who reported higher customer traffic in February. Thirty-six percent of operators reported a traffic decline in March, down from 55 percent who reported lower traffic in February.
Along with improving sales and traffic performances, restaurant operators reported a moderate uptick in capital spending. Thirty-six percent of operators said they made a capital expenditure for equipment, expansion or remodeling during the last three months, up from 30 percent last month and the highest level in five months.
 
The Expectations Index
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 101.9 in March – up 0.5 percent from February and its strongest level in nearly three years. In addition, the Expectations Index stood above the 100 level for the third consecutive month, which signifies expansion in the forward-looking indicators.
Fifty percent of restaurant operators expect to have higher sales in six months, up from 44 percent who reported similarly last month and the strongest level in 33 months. In comparison, just 15 percent of restaurant operators expect their sales volume in six months to be lower than it was during the same period last year, compared with 16 percent who reported similarly last month.
Restaurant operators also are gaining confidence in the direction of the economy. Forty-six percent of restaurant operators said they expect economic conditions to improve in six months, up from 38 percent last month and the strongest level since March 2005. Meanwhile, only 12 percent of operators said they expect economic conditions to worsen in the next six months.
Along with an improving outlook for sales and the economy, restaurant operators' plans for capital expenditures remained positive. Forty-seven percent of restaurant operators plan to make a capital expenditure for equipment, expansion or remodeling in the next six months, compared with 48 percent who reported similarly last month.
For the second consecutive month, restaurant operators reported a positive outlook for staffing gains in the months ahead. Twenty-seven percent of operators expect to increase staffing levels in six months, while just 14 percent plan to reduce staffing levels in six months. The full report is available online.

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