PHOENIX — The next six months may be a rough ride for both the U.S. and international economy, but beyond those storms, relatively smooth sailing may be on the horizon.
Bernard Baumohl, chief global economist of The Economic Outlook Group, laid out his forecast for how the U.S. economy will influence hotel industry recovery at The Lodging Conference this week in Phoenix, calling for “a fairly significant slowdown this fall and winter.”
“There are still great concerns about the delta variant spreading,” he said. “In addition, we don’t seem to see the supply chain bottleneck easing up. Third, energy prices are moving up and that’s going to cut into consumer spending. And finally, there’s a basic scarcity of goods — raw materials, intermediate goods and finished products. That will continue to cause prices to move up.”
These hits affect most major U.S. and international business sectors, but Baumohl said he is optimistic that a more normalized business and economic cycle will characterize most of 2022 and 2023 “if we can simply look just past this winter and fall,” he said.
One big reason for his optimism are vaccination rates slowly rising in the U.S.
“We’re seeing more people feel more comfortable about going out and going back to work,” he said.
However, the delta variant of COVID-19 still “weighs heavily on employers,” reflected in hiring declines throughout August.
“Leisure and hospitality showed zero new hiring in August, after seven months when we saw hiring in leisure and hospitality average out to 350,000 jobs per month,” he said.
Inflation Inflection Approaches
While inflation has put a dent in consumer confidence lately, Baumohl forecasts an impending inflection point that could send some advantage back to consumers.
“Some companies that had been passing along higher prices to consumers are saying ‘We can’t pass that much more on or we’ll lose market share,’” he said. “As a result, we could see some leveling out and … come 2022, we’ll see those inflation pressures start to come down, with 2% to 3% headline inflation average by 2023.”
Business, International Travel Will Prevail
“We’ve all been through economic cycles in the past and I can tell you with absolute confidence, do not underestimate the resilience of business travel to come back,” Baumohl said.
His forecast? “I think 90% of business travel will come back in the next year or so,” he said.
Vaccine boosters and vaccination plans for children also will spur more travel, he said.
Baumohl said international inbound travel to the U.S. is another evolving topic that will result in “a significant pickup in leisure and business travel,” particularly when land border crossings between Canada and Mexico are expanded.
Recession off the Table
Provided some big actions occur — no more major virus shocks, the passing of the U.S. infrastructure spending package, and a raised or suspended debt ceiling, among other assumptions — Baumohl said he is comfortable “taking recession off the table for the next five years” in the U.S.
With the U.S. economy currently in expansion mode, he said it will be critical for the U.S. “to act as a locomotive to help bring the rest of the world back online.”
Some Negatives
Despite the signs of forward momentum outlined above, the future isn’t smooth sailing, Baumohl said. Plenty of waves could rock the ship.
Supply chain disruptions continue to interrupt normal movement of goods around the world, which cuts into the hotel industry’s ability to source everything from construction materials to furniture, fixtures and equipment.
“There is no doubt the pandemic has fundamentally changed the economic and business landscape,” Baumohl said, and the United States’ reliance on other countries for materials is spurring “a real assessment with respect to the supply chain as companies look at new technologies and … deciding if it’s more economically feasible to move plants to the U.S.”
Plus, the uneven nature of how the pandemic has affected different places around the world reflects the pace of global economic recovery.
He pointed to issues facing Europe’s recovery, including delta outbreaks and “super high energy costs.” Germany is in a holding pattern as its new government is established, and Japan “has been particularly vulnerable to shortages in supply chain.”
China faces “a series of domestic issues right now,” Baumohl said, chief among them COVID-19 outbreaks that force immediate shutdowns, affecting production of goods; and the country’s “excessive domestic debt to deal with.”