While in grad school at the Martin V. Smith School of Business and Economics, I had the pleasure of an elective course in economics with Dr. Sung W. Sohn as my professor. Dr. Sohn's experience included being the Senior Economic Advisor in the White House, CFO of Wells Fargo, and is presently on the board of directors of Forever 21 (his page is here). Indeed, it was a tremendous opportunity to learn from an economist such as him.....
Dr. Sohn taught us an interesting economic indicator that pretty well measures manufacturing growth....and this rather peculiar measure is that of beer sales. At first glance, this seemed odd....why would beer sales be an indicator of anything? The reason is quite simple - demographics of the typical beer drinker. Historically, beer drinkers tend to be the working class types, that for the most part, represent the middle class of the United States economy. Dr. Sohn provided a chart showing progressive increases of beer sales, which concurrently, seemed to follow favorable reporting of growth in the manufacturing sector.
Now, at face value, this indicator seems to make sense.....or does it? My main issue with this indicator is that it is nearly impossible to differentiate the beer consumption that takes place in restaurants (restaurant dining is a sign of economic prosperity, and a decrease in dining out is an indicator of weaker economic times) versus beer consumption in a residence (which tends to take place in lieu of dining out). So, perhaps looking at restaurant dining may be a more accurate indicator of current economic situations in the United States?
What makes things even more complicated is the relatively recent consolidation of several of the major brewers in the world. Anheuser-Busch merged with InBev a few years back, and now their earnings and growth are somewhat clouded with growth and situations in other markets (specifically Asia). Corporate profits could show a relatively stellar year for overall growth, but it becomes increasingly more difficult to measure the domestic beer sales as an economic indicator.
Another monkey wrench that has been thrown into the mix is the phenomenal growth of craft beers. These beers have enjoyed a growth rate of 12-15% annually in the past few years, and could be a relative offset of the traditional beer sales numbers. What makes these beers so different is the nature of them - smaller batch brew, and tend to be substantially more expensive (Firestone Walker is my personal favorite). Concurrently, the growth of the craft beer segment tends to indicate some degree of economic prosperity, as they tend to be consumed by those who are more affluent.
In my opinion, the major tell-tale indicator comes back to profits......in a recent article by Stephen Simpson of the Motley Fool, 70% of SABMiller profits come from emerging markets, in places such as Latin America. 3Q2013 growth was lower than expectations, and declines were posted in North American markets. The indicator of decline in North America tells me pretty much what I expected to learn.....the growth of the beer industry overall is being masked by substantial growth in foreign markets, and the macro environment of North America is still in a state of decline. While payroll numbers for December showed a .3% gain, this can largely be attributed to seasonal work during Christmas that is experienced every year.
2014 will be a very interesting year, with the talk of the Fed tapering QEIII, and the expected impact to the stock market resulting. In the first three weeks, we have seen some substantial losses on Wall St, with investors taking the profits they made last year. With president Obama's continued banter about income inequality and redistribution, rather than focusing on stimulation of the business sector, the current administration cannot be counted on to create the favorable environment needed for sustained economic growth. I won't even get started on the mess that Obamacare has created and I expect to continue to create.
In conclusion, I don't expect a strong year of performance for domestic beer sales. There is definite proof that there is a correlation between economic performance and beer sales, but the economic indicators are reversed this time - I don't see the growth happening in the United States, and therefore, don't see the beer sales increasing.
