5 things to know about hotels and the US economy
 
5 things to know about hotels and the US economy
28 MARCH 2017 8:28 AM

Aran Ryan of Tourism Economics explained to attendees at the Hunter Hotel Investment Conference the opportunities, challenges and uncertainties they’re likely to face in 2017 and beyond. 

ATLANTA—Almost 10 years after the start of the recession, the U.S. hotel industry and overall economy have generally recovered with reassuring signs of continued growth, but feelings of insecurity continue to hang over both as the country heads into uncertain times.

Aran Ryan, director of lodging analytics at Tourism Economics, provided attendees an overview of the U.S. economy and the hotel industry during his presentation, “2017 U.S. Economy & the Lodging Industry” at this year’s Hunter Hotel Investment Conference.

1. Guest demand and the GDP

Looking back at increases in guest demand compared to gross-domestic-product growth over the past decade and a half, guest demand fell quicker than the broader economy during the recession, Ryan said. However, it also recovered more quickly. The U.S. hotel industry has seen steady gains in demand for hotels since the recession, he said.

Demand for hotels has historically kept pace with GDP growth, he said, but it usually happens more slowly.

“Recently in this recovery, even as the economy has been sluggish, travel has increased,” Ryan said. “It’s breaking records, not just in occupied roomnights, but in occupied roomnights per capita.”

2. Consumers spending more on travel …

In recent years, households and the corporate sector have been net savers, Ryan said, two factors restraining consumption that would otherwise grow the global economy. However, as the U.S. has recovered, consumers have seen their household net worth growth from home price and equity gains.

As households have better dealt with their debt burdens, this has increased their share of disposable income, he said.

From 2011 to January 2017, consumer spending on lodging has increased 41.8%, outpacing other sectors. The food-and-beverage sector came in second, growing 31.2% for the same time period.

“Consumers are spending more on lodging relative to other sectors, dedicating a greater share to lodging,” Ryan said.

3. … as US wages continue to grow

U.S. labor markets have grown tighter, Ryan said, and as a result, the country is seeing wage growth. Wage growth dropped drastically from 2008 to 2010 during the recession, and it has slowly increased back to nearly pre-recession levels.

Consumer confidence is high, Ryan said, some of which translates to consumer spending. However, economists still have a wait-and-see attitude. Consumers will have to deal with stronger price inflation, he said, and energy-related costs could erode some of their spending power ahead.

“Overall, real spending is a step down from a few years ago, but it’s still a pretty good rate of spending growth,” he said.

4. Risks to the economy and hotel industry

A survey of small businesses resulted in a “fascinating dichotomy,” Ryan said. Business owners reported both being highly confident while they also said they remained highly uncertain about what will happen.

Looking at global risks, the Trump administration has promised tax cuts and infrastructure spending, two projects that could promote growth in the country. At the same time, President Donald Trump’s rhetoric on immigration and trade policy could lead to negative foreign sentiment toward the U.S. and more protectionism, possibly resulting in a trade war that could push the country toward recession in late 2019.

The period between 2000 and 2006 provides some historical context as to how the next few years could proceed, Ryan said, citing the wars in Iraq and Afghanistan with the related security concerns.

“Inbound travel declined 3% a year,” he said. “It informs what could happen now. … Our view as baseline, overseas travel to the U.S. declines 1% next year and then increases.”

5. Demand growth versus supply growth

Ryan said he’s looking for stronger demand this year and next year than what was seen in 2016, but it will trail GDP growth, reverting to its longer-term norm. Leisure travel growth will remain strong, he said, and group business will likely pick up, driven by consumer confidence.

However, these gains won’t be enough to offset the projected number openings of new hotels, he said, leading to occupancy declines.

“It’s a pretty good predictor of what’s going to happen,” Ryan said. “We’re expecting 2% growth in 2017, 2.2% in ’18. It varies across the markets. There are 10 markets with greater than 5% supply growth. Some of those markets have seen a substantial uptick from just a year ago in what was under construction.”

2 Comments

  • Jeneva April 27, 2017 2:12 PM Reply

    I could read a book about this without finding such real-world apsocarhep!

  • Jeneva April 27, 2017 2:12 PM Reply

    I could read a book about this without finding such real-world apsocarhep!

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