Tourism Economics Expects Zero GDP Growth in First Two Quarters of 2024
The recovery of travel in the U.S. is basically complete, said Adam Sacks, president of Tourism Economics.
In a presentation during the PKF Hospitality Group's virtual 196+ Summit Americas, Sacks said that travel spending in October was nearly 5% ahead of where it was in 2019, and year to date it’s up about 4%. The number of air passengers in October was up 4.8% compared to the same month in 2019 and up 1.1% year to date.
While hotel demand isn’t fully back, the main reason for that is overseas travel to the U.S. hasn’t fully rebounded, he said. The month-to-month trends show performance across all key metrics improving relative to 2019.
“Basically, things continue to look really good,” he said. “We’re not seeing things let up as far as demand, but I would say as we look forward into the future, there is a bit of a tug of war.”
On the market side, the U.S. added about 130,000 jobs in October, but there are some signs that things are softening, Sacks said. Unemployment is under 4%, but he believes that will break through in the coming months.
Consumers are worried about inflation even though it’s rising slower than a year ago, he said. The Federal Reserve has committed to raising interest rates to bring down inflation, and has raised rates at the fastest pace in history. That has had a significant economic effect, notably in home sales, which have plummeted with 30-year fixed mortgages at 8%.
Higher interest rates have taken a toll on consumer spending, with consumer loans decreasing as the cost of debt increased, he said. There’s been a tightening of credit standards as well.
"Typically, we would expect to see consumer demand follow that in terms of softening in the coming months," he said.
Much of the household savings amassed during the pandemic are still there, but people are drawing down on them, he said. Student loan payments are restarting, and overall there's less disposable income.
The manufacturing sector has been contracting for more than a year now, Sacks said. Historically, when manufacturing pulls back, the economy slows.
Oxford Economics, parent company of Tourism Economics, expects U.S. gross domestic product will grow 1% during the fourth quarter of 2023. Moving into 2024, the first two quarters of the year will have no growth followed by full-year GDP growing by 1%.
“We dodge a technical recession,” he said. “It also means that the economy is getting very close to stalled.”
The share of consumer spending going to services compared to goods is below the long-term trend, Sacks said. That means people have “binged on stuff,” and that’s expected to level off, leaving room for people to spend on experiences, such as travel.
The latest data from travel data firm Longwoods shows a high percentage of people still plan to travel in the next six months. There’s some weakness at lower income levels, which is to be expected as inflation is economically regressive, so those households will be hit harder by higher prices.
During the company’s third-quarter earnings call, Choice Hotels International executives spoke about long-term tailwinds from baby boomers retiring at an average of 3.5 million a year, Sacks said. This generation is a big driver of leisure travel.
Thirty percent of all business trips are now expected to have some leisure component to them, he said. Fifteen percent of travelers said they plan to work remotely in the U.S. for one to four weeks, while another 8% say they’re going to do the same for four or more weeks.
International outbound travel has rebounded in the U.S., reaching 20% above 2019 levels, he said. Inbound international spending hasn’t recovered yet, and that’s unusual because normally there’s more spent in the U.S. by international travelers than spent abroad by U.S. travelers. In 2019, there was a trade surplus of $22 billion, but that reversed over the following years, and the forecast for 2023 is a delta of $42 billion in which U.S. travelers spent more outside the U.S.
That equates to 34 million lost hotel room nights in the U.S., a drop of 2.7% in room demand, he said. However, there's good news.
“That’s going to come back, and that’s one of the reasons why we think room demand is going to be resilient in 2024 even in the face of an economic slowdown,” he said.
A survey of travel intent over the next 12 months to the U.S. conducted by Brand USA showed that as of August, intent to travel to the U.S. is back to pre-pandemic levels. There’s momentum across all the major regions, and while some are not fully back, particularly Asia-Pacific markets, some have returned with strength, such as Germany, France and Brazil.
Citing the latest earnings call by Host Hotels & Resorts, Sacks said group business continues to improve, and the booking window for this demand segment continues to extend.
“It is coming back and is on its way to full recovery,” he said.
The bookings pace with Tourism Economics’ clients among convention and visitors bureaus and destination marketing organizations are being brought in ahead of 2019, he said. Hilton said its group booking pace for 2024 is up 18% year over year.
“What are we seeing? We're seeing resilience in leisure travel because of different types of leisure travel,” he said. “We're seeing business and group continue to rebuild, and we're seeing international returning to a surplus in the coming year, which is going to help fill in some of the weakness that you'd otherwise see in domestic.”
Copyright 2023 CoStar Group. All rights reserved. From https://www.costar.com. By Bryan Wroten, Hotel News Now.