Economist: High consumer spending fuels growth
 
Economist: High consumer spending fuels growth
01 OCTOBER 2019 8:31 AM

As long as U.S. residents are making money and spending it on travel, economist Bernard Baumohl sees no warning signs of a recession. Still, trade wars, slower business spending and human folly still cause worries.

PHOENIX—The No. 1 question people ask Bernard Baumohl, chief global economist at The Economic Outlook Group, is “How many more blows can this aging business cycle take?”

He answered that question for attendees at the recent Lodging Conference by assuaging fears that a recession is imminent.

“We’ve achieved something quite special, growing for more than 10 years,” he said of the current economic cycle. “The fundamentals of the economy are still great—unemployment rates are the lowest we’ve seen, wages are still moving up, people are spending, borrowing costs are among the lowest we’ve seen, there’s ample capital looking for investments. These are not the symptoms of an economy that’s approaching a peak.”

Nevertheless, he said, “there’s an undercurrent of fear and alarm that a recession is possible, and probably next year.”

But Baumohl tried put that worry out of the audience’s head, reminding attendees that “it’s exceedingly difficult for a $22-trillion-free-market economy to actually fall into a recession. You need a confluence of negative events of such magnitude to ultimately derail the economy, and we just don’t see it.”

Still, he pointed to current concerns that could throw growth off track, including the U.S. trade war with China, “chilling” business capital spending and what he called “acts of human folly.”

“The last two recessions have been that—really, acts of stupidity,” he said, referring to the dot.com bust in the early 2000s and the Great Recession.

Bolstering the economy now is still-high consumer confidence and consumer spending, Baumohl said.

He attributed that in part to the ease of online shopping, as well as good job growth. Since companies are still looking for workers, he said, “We will continue to see job growth, even as the economy slows.”

He called e-commerce “the single greatest deflationary force we’ve seen in modern economic history.”

Overall, Baumohl said as long as consumers continue to spend, the economy will be OK.

“I don’t see a recession in the next two years,” he said. “Yes, we’ll see growth at around 2%, and I think we should accept that for now, at least. The main focus remains on the customer. As long as companies continue to hire them, they will continue to spend and that will keep the U.S. out of any deep trouble.”

Analysts weigh in
Industry analysts shared some current trends around U.S. hotel performance, distribution and transactions at the conference. Here are some highlights:

  • Rooms revenue is up: U.S. hotel rooms revenue is $115 billion year to date through August, according to Vail Ross, STR’s SVP of global business development and marketing. That number is higher than it was this time last year, Ross said.
  • Supply/demand tipping point ahead: Ross also pointed to the STR forecast for 2020, which projects supply to outpace demand for the first time in years. In 2019, STR forecasts supply growth at 1.9% and demand at 2.1%, but in 2020 the forecast calls for supply at 1.9% growth and demand at 1.6% growth.
  • Direct channels still lead: Kalibri Labs Partner and Senior Advisor Mark Lomanno showed that demand through direct channels still leads the way, led by property-direct and brand.com channels, though the property-direct channel has declined over the last few years. It’s still the direct channel with the most bookings, representing 28% of bookings year to date, according to Kalibri, but that number has declined. Brand.com bookings have grown in the last four years, now representing 24% of bookings. July 2019 was “the first month that more hotels were booked on brand.com (than property-direct),” Lomanno said.
  • Transaction volume down: This year, total hotel transaction volume is down compared to last year, said Adam Lair, managing director and senior partner with HVS. “This time last year we were seeing a little recovery in transaction volume, seeing more buyers and sellers and more transactions,” he said. “This year we’re down pretty significantly. Total volume is down 8%, including a 2% drop for limited-service hotels and a 10% drop for full-service assets.”

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