GDP isn’t the best indicator of hotel demand
25 AUGUST 2014 7:27 AM
STR’s Chad Church doesn’t like GDP when looking at hotel demand. Instead, GPDI is the bread and butter, he told attendees at the Hotel Data Conference.
Chad Church, VP of operations at STR, doesn’t like gross domestic product anymore.
He said the correlation between GDP and hotel demand is weaker than it used to be.
“It used to be if I was forecasting in the ‘90s, and I had GDP a forecast that was pretty accurate, well, I could forecast hotel demand,” he said.
But not so much anymore, he added.
Recently I attended a presentation by Church during the 6th annual Hotel Data Conference, presented by STR and Hotel News Now. STR is the parent company of HNN.
During the 30-minute presentation titled “Action and reaction: Insights into economic activity and hotel performance,” Church discussed what factors he considers important when looking at the economic landscape and hotel performance.
He said there are three types of indicators based on the time period they measure:
- leading: changes that happen before the broader market (can be any number of months “ahead”);
- coincident: current state—these things happen at the same time and give a picture of the overall market moving; and
- lagging: changes that happen after the broader market.
“The problem with business overall is we set up lagging indicators as a measure of success,” Church said. “If we identify leading indicators as measures of success then we could persist, rather than giving up when we don’t hit our goal.”
He said it’s worthwhile to look at manufacturers’ new orders because, in general, the economy tends to follow this indicator. New orders equal jobs equals wage rates equals disposable income.
“People putting in these orders … it doesn’t mean they’re buying it today. It means they’re placing the order for it. What that means is I’m buying now for later production,” he said.
As manufacturers’ new orders started to dip in 2008 leading into the recession, it led average-daily-rate decline by about five or six months, Church explained.
“In 2009 and 2010 as we started to hit the recovery cycle, it’s an even longer lag there,” he said. “So, ‘manufacturers’ new orders,’ in general, is really what the economy follows. It is a leading indicator for a lot of different industries. And it just happens to work really well with hotels as well.”
The thing is, he said, you can find a lot of different indicators that correlate really well with hotels but have nothing to do with hotels.
A couple other indicators Church discussed included: unemployment rates by education attainment; personal savings; compensation of private workers; personal consumption expenditures; and home prices.
GPDI, not GDP
Although Church isn’t too keen on GDP, he does have eyes for GPDI—gross private domestic investment—which is the amount of GDP generated by business investment. This, he said, is the bread and butter:
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