By Waylon Cunningham
(Reuters) – Mass evictions promised by President-elect Donald Trump could deliver an economic shock to the restaurant industry in ways that echo the pandemic: more expensive menus, rising wages and shuttered storefronts , worry economists and certain restaurateurs.
But Wall Street is betting that Trump’s harsh words are a bluff before a more limited crackdown that won’t uproot the restaurant industry’s immigrant workforce.
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The industry is one of the most dependent on illegal workers in the country, making it a test of whether Trump will fully deliver on his campaign promises.
“I see little risk that they will evict people who work in restaurants or elsewhere in the food industry,” says Dan Ahrens, chief operating officer and portfolio manager of AdvisorShares. Ahrens said he believes the Trump administration will focus on immigrant criminals, with talk of broader deportations amounting to political rhetoric.
The Thomson Reuters index of restaurant and bar values has risen steadily more than 5% since the election, outpacing the S&P 500. Last year, although lagging the S&P, restaurant values rose by nearly 10%, supported by rising prices across the sector, even as consumers eat out less.
Gary Bradshaw, portfolio manager at Hodges Capital Management, said he remains optimistic about restaurants growing in revenue and store counts, such as Chipotle, McDonald’s and Texas Roadhouse. Regarding the prospect of expulsions, he said: “I guess the bark is a lot louder than the bite, but hey, no one knows that. So I don’t spend a lot of time thinking about it.
Jake Dollarhide, managing director of Longbow Asset Management, said he doesn’t make investment decisions based on hypothetical policies. “We did not sell our energy stocks the day Joe Biden took office,” he said. He said he thinks stock market highs and Americans’ “propensity to spend” will continue to drive restaurant stocks higher. “The perception of food inflation — whether real or not — benefits restaurants,” he added.
Trump said deportations would initially focus on criminals residing illegally in the United States, but that the net would eventually widen to include all illegal immigrants in the country.
“I think you have to do it,” he told NBC last weekend. About 1 in 12 of the nation’s 10 million restaurant workers were living in the United States illegally in 2022, according to Pew Research Center estimates from this summer that have not been previously released.
“Restaurants will be a hard-hit industry” if Trump follows through on his eviction promises, said Marcus Noland, an economist at the Peterson Institute for International Economics. Not only will they face higher labor costs, Noland said, but they will also have to pay more for food because of upstream disruptions in agriculture.
“You saw it during the pandemic, when many restaurants had restricted hours, smaller menus and worse service,” he said.
The PIIE estimates that prices in the services sector would increase by 1.7% if the Trump administration deported 1.3 million workers, or by 11% if the administration fulfilled its pledge to illegally deport all immigrants working in the country, which the Pew Center estimates at 8.3 million.
“We’re already facing a huge labor shortage in the food industry,” said Jacob Monty, an immigration and labor lawyer who advises restaurant chains. “If you add more controls, it will become even more difficult to find workers for restaurants.”
Diners are already reeling from sticker shock, and Kelsey Erickson Streufert, political liaison for the Texas Restaurant Association, said the state’s restaurateurs fear a “tipping point” has been reached for increase prices. “Customers will only pay a limited amount for a burger,” she said.
(Reporting by Waylon Cunningham; editing by Peter Henderson and Alistair Bell)
