By Emily Kaiser
CHICAGO (Reuters) - While investors fret over sour subprime mortgages sinking the U.S. economy, the "prime rib indicator" suggests wealthy consumers are doing just fine.
Ruth's Chris Steak House Inc. (RUTH.O: Quote, Profile, Research, Stock Buzz), which sells top-of-the-line steaks and seafood primarily to business travelers and well-heeled customers, has seen no indication of companies squeezing expense accounts or consumers clamping down on household budgets.
At the Reuters Food Summit in Chicago this week, Ruth's Chris Chief Executive Craig Miller said American consumers were so accustomed to dining out that it was "no longer really a luxury item at all. It's an absolute necessity."
A slowing housing market has exposed risks in the subprime mortgage sector, which lends to people with poor credit histories. As interest rates rose and housing prices fell, some homeowners were hit with higher mortgage payments and could not refinance or sell their homes.
More than 20 subprime lenders have quit the business in the last year, some of them via bankruptcy. That has sparked fear on Wall Street that lenders would tighten terms, triggering a credit crunch and dragging down the broader U.S. economy.
Those worries, along with a stock market tumble in China and former Federal Reserve Chairman Alan Greenspan's talk of a possible recession, helped fuel a 400-point drop in the Dow Jones industrial average .DJI on February 27.
Shares of high-end restaurants including Ruth's Chris and McCormick & Schmick's Seafood Restaurants Inc. (MSSR.O: Quote, Profile, Research, Stock Buzz) took a hit last week after Greenspan's comments, but McCormick executives said neither the housing slowdown nor the wobbly stock market had hurt business.
Speaking at the summit, McCormick Chief Financial Officer Manny Hilario said it was no surprise to see the company's share price fall "when you drop the 'r' word," because investors logically assume that consumers will curb discretionary spending. Continued...
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| Global Real Estate | Jun 23 - 25, 2008 | Real Estate |
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| Investment Outlook | Jun 09 - 12, 2008 | Financial Services / Exchanges |
