Driven by positive sales and traffic and an uptick in capital expenditures, the National Restaurant Association’s Restaurant Performance Index (RPI) finished 2014 with a solid gain. The RPI—a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry— stood at 102.9 in December, up 0.8 percent from its November level of 102.1. In addition, December marked the 22^nd consecutive month in which the RPI stood above 100, which signifies expansion in the index of key industry indicators.

“Growth in the RPI was driven by the current situation indicators in December, with a solid majority of restaurant operators reporting higher same-store sales and customer traffic levels,” says Hudson Riehle, senior vice president of the research and knowledge group for the NRA. “In addition, six in 10 operators reported making a capital expenditure during the fourth quarter, with a similar proportion planning for capital spending in the first half of 2015.”

“Overall, the RPI posted three consecutive months above 102 for the first time since the first quarter of 2006, which puts the industry on a positive track heading into 2015,” Riehle says.

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, while index values below 100 represent a period of contraction for key industry indicators. The index 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 102.9 in December—up 1.5 percent from a level of 101.4 in November. In addition, the Current Situation Index stood above 100 for the 10^th consecutive month, which signifies expansion in the current situation indicators.

For the 10^th consecutive month, a majority of restaurant operators reported higher same-store sales, with the December results representing a solid improvement over November’s performance. Seventy-one percent of restaurant operators reported a same-store sales gain between December 2013 and December 2014, up from 57 percent who reported higher sales in November. In comparison, 19 percent of operators reported a same-store sales decline in December, down from 21 percent in November.

Restaurant operators also reported stronger customer traffic results in December. Sixty-one percent of restaurant operators reported an increase in customer traffic between December 2013 and December 2014, up from 45 percent who reported higher traffic in November. Twenty-three percent of operators said their traffic declined in December, down from 30 percent who reported similarly in November.

With sales and customer traffic trending in a positive direction in recent months, a majority of restaurant operators made capital expenditures. Sixty percent of operators said they made a capital expenditure for equipment, expansion, or remodeling during the last three months, up from 54 percent who reported similarly last month.

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 102.9 in December—up 0.1 percent from November and the third consecutive monthly gain. Moreover, December represented the 26^th consecutive month in which the Expectations Index stood above 100, which indicates restaurant operators are optimistic that business conditions with continue to improve in the months ahead. 

A majority of restaurant operators expect their sales to rise in the months ahead. Fifty-two percent of restaurant operators expect to have higher sales in six months (compared to the same period in the previous year), down slightly from 57 percent who reported similarly last month. Meanwhile, only 5 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 to 7 percent last month.

Restaurant operators are somewhat more cautious about the direction of the overall economy. Thirty-seven percent of restaurant operators said they expect economic conditions to improve in six months, down slightly from 41 percent last month. Only 7 percent expect economic conditions to worse in six months, while the remaining 56 percent expect economic conditions in six months to be about the same as they are now. 

For the 16^th consecutive month, a majority of restaurant operators said they are planning for capital expenditures in the months ahead. Sixty-two percent of restaurant operators plan to make a capital expenditure for equipment, expansion or remodeling in the next six months, up from 57 percent who reported similarly last month.