REPORT FROM THE U.S.—With slow growth now the norm for the hotel industry and several wider economic concerns looming, many are wondering if and when a recession might hit.
Experts speaking with Hotel News Now noted there are several important indicators of when and if the economy and the industry could be heading in to a downturn, but for the time being the signs are still at least somewhat positive.
Bernard Baumohl, chief global economist for The Economic Outlook Group, said his firm constantly monitors “12 key indicators (that) tell us whether there’s a turning point … in the direction of the economy.”
Baumohl, who was rated The Wall Street Journal’s most accurate economic forecaster in 2018, said he currently expects better economic growth in 2020 than 2019 (2.3% GDP growth versus 2.1%) and doesn’t expect a recession at any point of the year.
“Consumers have continued to spend, and that’s helped keep the economy out of trouble,” he said.
He believes the economy will similarly be boosted by the preliminary trade deal agreed upon by the U.S. and China, which could help boost business confidence.
Key indicators from Baumohl’s perspective include new applications for unemployment benefits, hiring and wages trends, consumer confidence, business rates, interest rates and inflation. He said for the time being at least, these figures all seem to be telling the same story.
“It looks to us, just looking at the key economic indicators, that it’s all flashing green lights, for now,” he said.
The key question is how long that will remain the case. Baumohl noted that lots of concerns about the broader economic expansion coming to an end are based on somewhat antiquated thinking, and current consumer behaviors might buoy the economy through what might traditionally be down periods. He pointed out online shopping and e-commerce has made spending “so frictionless” that consumer spending could be more resilient even in relatively bad economic times, which would be “a departure from the past.”
“The one reason why we continue to grow well into the 11th year of the economic cycle,” he said. “We always hear people asking what inning of the expansion are we in. Our argument is that’s not the way to look at it. If you keep the baseball metaphor, we’re going in to a double header.”
He noted the tight labor environment will continue to be a challenge for the relatively low-paying hotel industry, even though the strong jobs market continues to be an overall economic boon that helps boost tourism as a whole.
Canary in the coalmine
While the broader economy seemingly remains strong, there are some worrying signals for the hotel industry, said Jan Freitag, SVP of lodging insights for HNN’s parent company, STR. He noted that one of the key metrics he keeps an eye on is the percentage of submarkets across the U.S. that are experiencing revenue-per-available-room contraction.
Past research has shown the tipping point that seems to indicate a true down cycle is imminent is 43.5% of submarkets showing RevPAR declines. Year-to-date the domestic hotel industry has hit 42%, which is worryingly close.
“But does that mean a recession is coming? Probably not,” Freitag said. “We continue to trust our friends at Tourism Economics, who believe GDP will remain positive through 2021, but this could be a leading indicator.”