Leading Indicator: McDonald’s Sales Results Show Low-end Retail Growing

This morning, the world’s largest restaurant chain, McDonald’s Corp. (NYSE/MCD), reported that stores open at least one year in November saw sales rise 6.5% in the U.S. McDonald’s, with over 33,000 stores worldwide, is often referred to as a benchmark stock; a leading indicator of consumer spending behavior.

As a leading indicator, McDonald’s 6.5% year-over-year U.S. sales increase tells me two things:

The low-end consumer market is spending and the middle-end consumer is curbing expenses and turning to low-priced food alternatives such as McDonald’s. The results of many retail companies, again all leading indicators of consumer spending, are telling us the same story.

Look at the post-recession environment and you will find that the high-end retail sales market is doing well and the low-end retail sales market is doing well. The middle-market, the average Joe American, is the one who has been experiencing the most post-recession pain.

Nearly 15% of the U.S. population is using some form of food stamps; that’s 45.8 million people (Source: Wall Street Journal, 11/1/11). When you hear such a statistic, it’s easy to see why McDonald’s business is doing so well. In 2003 McDonald’s stock sold at close to $10.00 a share. This morning, it opens at $96.45—a leading indicator of more profits lying ahead.

We need to keep in mind that raw food prices have been skyrocketing. McDonald’s has been raising its prices to consumers as McDonald’s cost of goods has risen. Hence, as a leading indicator, McDonald’s results signify that, as food costs rise, consumers are turning more and more to low-end restaurants like McDonald’s.

I believe that 2012 will be another very difficult year for the U.S. consumer. Companies like McDonald’s that cater to the low-end retail market, while increasing the nutritional value of their product, will continue to perform well.