Demand fundamentals, stimulus cash key to US recovery
 
Demand fundamentals, stimulus cash key to US recovery
18 AUGUST 2020 7:30 AM

An analysis by Tourism Economics finds that personal savings, government stimulus and stable demand fundamentals bode well for the hotel industry’s recovery.

NASHVILLE, Tennessee—Analyzing data to plan for an uncertain future that appears immune to such a task is of the utmost importance, because that future, to use a cliché, has already begun, even though for once it might not seem like it, Tourism Economics President Adam Sacks said during the keynote opening session at last week’s online Hotel Data Conference.

The main reason for the troubling nature of using data right now is that the pandemic’s effect on data is both historic and meaningless, he said.

During a session titled “U.S. macroeconomic overview,” Sacks said the numbers currently look bleak, with U.S. travel spending predicted to fall 45% in full-year 2020 and only climb to within 7% of 2019 levels by 2024.

“The difference is that performance has never been more disparate in all the years I have been studying this,” he added.

But Sacks said the good news is that “losses appear to have leveled off at around 50%. There has been significant rebound from the bottom, starting on Memorial Day.”

In terms of the fall in state-by-state travel spending, rural and leisure states have performed the best, with the one exception being Hawaii that in most cases requires a flight to reach, he said.

The hotel industry evidently mirrors that of the general economy, Sacks said.

“Second-quarter (gross domestic product) is down 33%. If that does not take your breath away, then you do not love economics like I do,” he said.

The historic, meaningless nature of current data is that most people have never experienced such declines before, Sacks said. Some people are still alive that remember the peak-to-trough decline of 13% that came after World War II, but few are still alive that experienced the Great Depression, which might be the closest parallel to 2020.

“It is meaningless as in effect (the pandemic) is shutting down the economy, so there is no bubble. It is something external, so it does not tell us anything about the economy other than we have shut down,” Sacks said.

Labor presses on
Equally worrying is that after a steady recovery through the early part of the summer, employment has plateaued, and the U.S. is only in the first phase of getting out of lockdown.

“We are down 13 million jobs in non-farms payroll employment. The reason this matters is that it has a significant income effect, minus 4.2% in nominal terms this year,” Sacks said.

He said in terms of gross domestic product, it will take a long time before the country gets back to where it has been.

“The risks are skewed to the downside,” he said.

For GDP for full-year 2020 and 2021, Sacks said he predicts a decline of 4.2% if growth recovers a little from right now, while if a second wave of COVID-19 occurs, that decline will drop to between 4.7% and 6.4%. If scientific advances happen—not necessarily including a vaccine—and restrictions lift more quickly than thought, Sacks predicts is 3.3% decline through the period.

“The upside scenario, although it is difficult to see through the fog, is that a vaccine comes out quicker than expected,” he added.

More good news among the bad is that the U.S. is unlikely to experience a double-dip due to the approximately $4 trillion in government stimulus capital.

That money will have to be paid back, though, with the current debt-to-GDP ratio likely soon to rise above 100% for the first time since WWII.

High levels of savings will help the rebound in spending, too, he said.

“During the Great Recession, the jobs most affected were in low-income levels, so the travel market (in terms of spend) will not be hit proportionally to the labor market, even if we’re down 30 million jobs,” Sacks said.

Business back
Sacks said essential meetings and regionally based, smaller meetings might return in the first quarter of next year, while some larger events and long-haul international travel might happen in the second quarter.

“So we are looking at 2023 when all segments fill all our hotel rooms, and destination performance will largely hinge on exposure. The ability to transition to new markets will be key to accelerating recovery,” he said.

Right now, one in four travelers are switching from flying to driving, he said.

In 2019, the U.S. received 79 billion inbound travelers in comparison with the 97 million outbound ones, Sacks said. This trend to the staycation gives the U.S. a noticeable positive net. Recovery might require that trend to continue after a vaccine is developed.

“U.S. hotel-room demand will have a three-year recovery period, compared to two years after the Great Recession, and it is not suitable to start the clock until we are out of the teeth of the pandemic, that is, the beginning of 2021, so (recovery) might be on the lines of that of the Great Recession,” Sacks said.

Sacks suggested that in 2021, the U.S. will regain 81% of the demand levels seen in 2019, but that revenue will take 15 or so quarters to return to the peak. Full-year 2021 will recover 68% of 2019’s revenue levels.

Sacks reiterated that the demand drivers present before COVID-19 won’t permanently disappear.

“The things that drove demand will be very much still in place on the other side of this crisis,” he said. “Economic recovery has plateaued but will accelerate as the virus is contained. Recovery is inevitable.”

No Comments

Comments that include blatant advertisements or links to products or company websites will be removed to avoid instances of spam. Also, comments that include profanity, lewdness, personal attacks, solicitations or advertising, or other similarly inappropriate or offensive comments or material will be removed from the site. You are fully responsible for the content you post. The opinions expressed in comments do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Please report any violations to our editorial staff.