As a result of soft sales and traffic levels and a deteriorating outlook among restaurant operators, the National Restaurant Association’s comprehensive index of restaurant activity remained essentially flat in July. The 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 99.4 in July, down 0.1 percent from June and its fourth consecutive decline. In addition, the RPI stood below 100 for the third consecutive month, which signifies contraction in the index of key industry indicators.

“While there were signs in recent months that the short-term outlook may be improving, the latest figures indicate that the restaurant industry’s recovery has yet to fully gain traction,” says Hudson Riehle, senior vice president of the Research and Knowledge Group for the National Restaurant Association. “Restaurant operators continued to report declines in same-store sales and customer traffic in July, and their previously-optimistic outlook for sales growth and the economy softened in recent months.”

Watch a video below of Riehle providing an industry update on the June RPI and how tourism drives restaurant sales growth.

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 98.8 in July—unchanged from its June level. In addition, the Current Situation Index remained below 100 for the 35th consecutive month, which signifies contraction in the current situation indicators.

Restaurant operators reported negative same-store sales for the fourth consecutive month in July, with the overall results similar to the June performance. Thirty-nine percent of restaurant operators reported a same-store sales gain between July 2009 and July 2010, matching the proportion of operators who reported higher sales in June. Meanwhile, 44 percent of operators reported a same-store sales decline in July, compared to 43 percent of operators who reported negative sales in June.

Restaurant operators also reported a net decline in customer traffic levels in July. Thirty-five percent of restaurant operators reported an increase in customer traffic between July 2009 and July 2010, up slightly from 33 percent of operators who reported higher customer traffic in June. Forty-six percent of operators reported a traffic decline in July, up from 43 percent who reported lower traffic in June.

With sales and traffic levels remaining soft, restaurant operators reported relatively steady capital spending levels in recent months. Forty-five percent of operators said they made a capital expenditure for equipment, expansion, or remodeling during the last three months, up slightly from 43 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 100.0 in July—down 0.1 percent from June and its lowest level since December 2009. In addition, the Expectations Index declined for the fourth consecutive month after reaching a three-year high in March.

Restaurant operators have become less optimistic about their prospects for sales growth in recent months. Thirty-eight percent of restaurant operators expect to have higher sales in six months (compared to the same period in the previous year), down from 42 percent last month and the lowest level in six months. In comparison, 20 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 21 percent who reported similarly last month.

Restaurant operators are also much less bullish about the direction of the overall economy. Twenty-six percent of restaurant operators said they expect economic conditions to improve in six months, down from 28 percent who reported similarly last month and the lowest level in 13 months. In comparison, 21 percent of operators said they expect economic conditions to worsen in the next six months, matching the proportion who reported similarly last month.

Despite the deteriorating outlook, restaurant operators reported a slight uptick in plans for capital expenditures. Forty-three percent of restaurant operators plan to make a capital expenditure for equipment, expansion, or remodeling in the next six months, up slightly from 41 percent who reported similarly last month.