Can Your Fast Food Order Predict A Recession? McDonald's 'Burger-Fries' Indicator Explained

Analysts, economists and market participants have been harping over the question of whether the economy would fall into or avert a recession. The prediction has become all the more complicated because the job market and consumer spending have remained resilient despite the rising rate environment and inflation that stays elevated, much to the dislike of the Federal Reserve.

One simple data point may help answer this million-dollar question.

What Happened: McDonald's MCD CEO Chris Kempczinski shared an anecdote on the fast-food giant's first-quarter earnings call held on Tuesday that underlined the macro pressures.

"We are seeing a slight decrease in units per transaction. So things like did someone add fries to their order, how many items are they buying per order, we’re seeing that go down in most of our markets around the world slightly, but it’s still going down," the executive said.

Kempczinski also noted that in some places, there has been resistance to pricing.

"So, I think all of those are reflective of, again, a more challenging macro environment," he said.

McDonald's saw a slowdown in delivery growth, the executive said. This is another sign of an imminent downturn, as customers avoid any price inflation because of the service.

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Why It's Important: When people start cutting back on spending due to economic uncertainty, they usually tend to opt for cheaper fast food options, such as burgers and fries. A cutback within this order, or opting for dine-ins instead of deliveries with added costs, could indicate a more dire situation.

The National Bureau of Economic Research defines a recession as two consecutive quarters of negative GDP growth. Final fourth-quarter GDP growth released in late March showed the U.S. economy growing by 2.6% year-over-year following 3.2% in the third quarter.

Source: Bureau Of Economic Analysis

The first estimate of first-quarter GDP data is due for release on Thursday. Economists, on average, expect 2% growth for the quarter.

Despite the seemingly healthy pace of GDP growth in recent quarters, the odds of a recession have increased, said Morgan Stanley analyst Lisa Shalett. The recent stress in the banking sector has made an economic recession much more likely, she said.

JPMorgan also sees the likelihood of a mild recession in the second half of the year, Fortune reported. "A soft landing now looks unlikely, with the airplane in a tailspin (lack of market confidence) and engines about to turn off (bank lending)," analysts said.

The Federal Reserve has a crucial decision ahead. As it prepares to meet next week to determine interest rates, the constantly changing situation poses a challenge. Currently, the futures market has a 73.4% chance of a 25-basis-point rate hike to 5-5.25% at the meeting.

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