Bloomin' Onions: The Economic Indicator
ordering from Outback Steakhouse, how we measure the economy, and the labor market
A tweet went viral last month by pointing out the exorbitant costs of ordering from the Outback Steakhouse on DoorDash.
Thanks for the tweet, Sean. I get it, it was meant to be a criticism on inflation. Food prices are too high, and people are upset about that. But I mean, could you have gone about the complaint in an any more out-of-touch way?
One thing is to complain that a carton of eggs had nearly doubled in price last year. Another is to complain that having an individual driver deliver steak salad, lobster tails (multiple), a sirloin, a filet, a chicken sandwich, and TWO bloomin’ onions to your doorstep — all from the convenience of ordering through an app — is too expensive. The tweet got 4 million views. Rightly so, in my opinion, given how hysterical it is. The order, dare I say, even seems like a good deal?
Good vs. Bad
There’s been a lot of discussion recently on whether the economy is doing good or bad. There’s a lot of validity on both sides of the argument. More Americans have jobs than any other time in history, but the housing crisis makes it nearly impossible for the average American to buy a home. GDP growth has been strong, but student loan payments are resuming. Inflation has come down substantially which is good, but previously high inflation sets a reality of permanently higher prices moving forward.
There’s a lot of good, and there’s also a lot of bad.
Sean’s tweet about DoorDashing from Outback Steakhouse says a lot about the disconnect between this good versus bad within the economy. I say this for two reasons:
How we choose to measure the economy is pivotal when we have these conversations. There are many ways to assess the health of the economy. How much it costs to have two bloomin’ onions hand delivered to your doorstep is not one of them. Creating consensus and understanding around economic indicators to gauge the health of the economy is necessary when we have tweets like this gaining millions of views.
Wages are on the rise, believe it or not. This is especially great for people in lower income percentiles, especially when the price of virtually everything is going up. However, this also means that the price of labor goes up, and so the price of services provided by people will go up. When you DoorDash from a restaurant, you are effectively taking on the responsibility of paying a driver’s salary, as so much of their earnings come from tips. It won’t be cheap.
How Do We Measure the Economy?
One of the most common indicators for the health of an economy is Gross Domestic Product, GDP, which measures the dollar value of all the goods produced, and all the services provided, in a given time period. GDP grew 5.2% in Q3 of 2023 compared to the prior year. That’s great! Despite being in an increasing interest rate environment, we’ve seen substantial economic growth, primarily driven by a strong consumer.
Another metric we can look at is unemployment, which has hovered around a multi-decade low over the last several months.
Very loud layoffs in tech this year seemed to have skewed public perception of labor markets. The reality is that those layoffs accounted for a fairly small percentage of the entirety of the labor market. Not to diminish the hurt of those affected by tech layoffs, but the broad majority of laborers fared relatively well with regards to employment. Tons of money flowed into tech throughout 2021 and 2022. It became unsustainable, they were rolling a stone uphill, losing momentum with each rate hike. As money fled the markets, margins tightened, and layoffs were made. We also saw this in startups and venture capital, which brings me to my next point.
Venture capital conditioned swaths of the population to believe that they deserved to live within the bounds of these services, which were perceived as luxury. DoorDash, PostMates, Uber, Lyft, AirBnB, etc. The investors wanted an ever growing reliance on these applications so that in the future they could leverage user data to build out an advertisement arm within these businesses. But that obfuscates the reality of both the people ordering and the people delivering. Both the customers and the providers. The reality is that it’s expensive, or at least it should be, to have someone deliver food to your front door, because ultimately you are directly paying the wages of their jobs. With all that said, how cheap it is to DoorDash a meal is not a good economic indicator, especially when it was subsidized by venture capital for so many years.
Arguably, what matters most is how people feel. People are the building blocks of the economy, and their perceptions can create the reality that encompasses the economy.
The Financial Times had a great piece on the disconnect between how people feel about the economy versus how the economy is actually performing. We can see that the disconnect is far greater in the US than in other countries in the image below. Specifically in the last three years.
Perception is disconnected from reality, but at the end of the day, perception creates an individuals reality. So how you feel about the economy really matters too. It’s necessary to educate the population on real, sustainable metrics around how the economy is doing, this is the only way to have sentiment match on-the-ground reality.
What’s Going on with Wages
Despite disturbingly high inflation prints throughout the pandemic, in 2023 the United States managed to keep the rate of real wage increase above that of price increase. In other words, real wages — those adjusted for inflation — managed to increase at a faster rate than inflation itself. Which is great!
The chart below shows year over year wage increase compared to inflation since 2020. In 2023, wage increase was always higher than inflation prints. Where the pain came from was those middle months between March 2021 and December 2022, where inflation outpaced wage growth. Those effects obviously linger, they don’t dissipate overnight — but 2023 did a good job of bringing things back to “normal”.
Furthermore, the wage growth impacted younger people, and by proxy lower income earners, in a far more positive way than other cohorts. The 2010’s decade saw fairly stagnant wage growth, despite it being a relatively low inflation decade. But the last three years, we’ve seen a substantial boom in wage growth.
A couple weeks ago, the Treasury Department released an article on the purchasing power of American households. Below we see real wage growth since pre-pandemic years to now. The 25th percentile of the income distribution saw an increase of over 3% across the last four years. There are even reports showing that the bottom 10 percentile saw a 9% increase in real wages between 2019 and 2022.
This is certainly one of the explanations as to why the cost of services have increased. The people providing those services can demand better pay because we saw such a tight labor market throughout the depths of the pandemic. Yet another reason why DoorDashing from the Outback Steakhouse would be more expensive, you need to pay your chefs, the cleaners, the drivers, everyone is making more money.
And when that money is going to the workers, it’s actually a leveling out of the economy. It is people who can afford to pay for these services handing over more of their income to those providing it.
Final Thoughts
Bloomin’ onions are not a great economic indicator. However, even saying that can feel weird because I don’t want to invalidate Sean’s, or anyone’s, lived experiences. Prices have gone up, and it’s taking some time to adjust to this new reality. But prices are going up less fast now, and wage growth is slowly taking over. There’s a disconnect in how people see their own lives, how they see the lives of others, and how they see the economy.
It’s important to have defined metrics when discussing the economy, it’s important to listen to people who are living through the economy, and it’s also important to educate those people on how and why the economy is doing what it’s doing.
Have you ever considered that the increased DoorDash cost is coming from the fact that the drivers and restaurant workers need to make a livable wage? Have you ever considered that it’s because DoorDash wasn’t the most sustainable business to begin with? Once you make those considerations, we can have discourse around what actually tracks the economy, and how the general population is empirically doing. Because, once again, there’s a lot of good, and there’s a lot of bad, and it’s important to distinguish how to add weight to both sides.
Thank you all for reading, thank you for your time, and I hope you’re doing well.
Happy New Year.
Lucas
Great article