If you've been paying attention to the news recently, and this week in particular, you're aware that the economic outlook isn't as rosy as it was a few months ago.
You had hotel executives openly discussing the possibility of a recession at the Hunter Hotel Investment Conference just a few days ago. Tariffs are going to increase costs on goods from China, Mexico and Canada, including a lot of produce. The Federal Reserve's Federal Open Market Committee just voted to keep interest rates steady instead of lowering them again because inflation remains stubbornly high. It also lowered its gross domestic product expectations for 2025 from 2.1% to 1.7%.
And those are just headlines from HNN.
Now, all of that does not make a recession. Even in his own comments during the news conference about the FOMC vote, Fed Chair Jerome Powell said that while the possibility of a recession has increased compared to a few months ago, it's not high.
Even so, people are worried, so we're all talking about it.
If economic conditions do worsen, please remember what happened the last time the U.S. hotel industry ran into trouble. I'm referring specifically to when the pandemic started in the U.S. five years ago. Almost all travel shut down: Flights were canceled, people stayed home during lockdowns and hotels closed their doors.
It was absolutely a terrible time for everyone, and the hotel industry was no exception.
But what happened shortly after the start? Layoffs and furloughs almost across the board. Some hotel companies maintained full employment while others set up assistance programs for their laid off or furloughed employees. Others just let them go.
A few months later, leisure travel demand jumped over the summer as people wanted to get out of their houses. Sure, overall demand was nowhere near where it used to be, but it was a lot more than anyone expected. As months turned to years, hotel demand came back as people had a renewed desire to see the world.
And hotel companies scrambled to staff up their hotels to meet that demand.
The U.S. Bureau of Labor statistics found that between February 2020 and April 2020, employment in the leisure and hospitality segment dropped by 48.6%. By July 2023, employment in the sector was still down 2.1% compared to February 2020.
It took more than three years to almost come back to the same employment level as right before the pandemic. And, if I recall correctly, the leisure and hospitality segment had roughly 900,000 job openings as of January 2020, so even being close to February 2020 employment levels meant being understaffed.
In the years since the worst of the pandemic, I've heard several hotel executives address the broken trust employees felt when they lost their jobs when things got tough. That, of course, only made things tougher for those employees who then had to deal with a pandemic as well as unemployment. Yes, they could receive unemployment benefits, and those benefits certainly lasted longer than they normally would have due to federal assistance, but don't let this sidetrack you.
These employees lost their jobs, possibly jobs they've held for years, at the start of a pandemic, a time filled with a lot of fear, anxiety and uncertainty. So why would they want to return to an industry that dropped them so quickly? Who would feel secure in another job working for a hotel?
Some people came back, sure, but not everyone did. Hotel companies had to increase wages and benefits, implement new perks and really focus on employee safety and satisfaction. Why do you think unions have grown in popularity — across all business types — in recent years?
You might be saying that hotel companies faced that same uncertainty as well. I won't argue against that, because the industry absolutely did.
But as we face some potential economic uncertainty in the months, and hopefully not years, ahead of us, I would ask employers in the hotel industry to pause before taking any drastic labor measures to try to save on costs if things get rockier. I understand that wages and benefits make up most of the expenses, particularly on the operations side of things, and ultimately, that may be the only way to go.
But don't forget what happened five years ago and how long it took to bring people back to the industry. It wasn't that long ago, and I'm sure employees remember it all too well.
You can reach me at bwroten@hotelnewsnow.com as well as on LinkedIn.
The opinions expressed in this column do not necessarily reflect the opinions of Hotel News Now or CoStar Group and its affiliated companies. Bloggers published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to contact an editor with any questions or concern.