Transcript Tourism Economics - The Lodging Conference

ECONOMIC OUTLOOK
Implications for Lodging / Aran Ryan
September 27, 2016
US OCCUPANCY AT HIGH LEVELS
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REVPAR WELL AHEAD OF PRIOR PEAK
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ROOM DEMAND ACCELERATION AHEAD OF GDP
Lodging
demand
recovery has
been quite
strong.
But the pace is
slowing:
• 2015 2.7%
• 2016 1.6%
• 2017 1.6%
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AGENDA
Business investment
Economic
Consumers and leisure travel
outlook and
implications for
International inbound
lodging
Risks to the recovery
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BUSINESS INVESTMENT SLOWDOWN
Three quarters
of business
investment
contraction
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ECONOMIC RELEASES
After 1.5+ years
of missed
expectations…
… incoming
data is coming
in closer to
expectations
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GLOBAL RECOVERY AND THE RISK OF “LOWER FOR LONGER”
Based on world
GDP, this is the
weakest
momentum
post-recession
Risk of growth
being “lower for
longer”
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US GDP ANNUAL GROWTH
US GDP has
slowed to 1.6%
in 2016
Moderate
cyclical
recovery to
resume by 2017
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INVESTMENT EXCLUDING OIL AND GAS
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US BUSINESS INVESTMENT OUTLOOK
Factors weighing on business
investment
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1
Anemic demand growth
(domestic and world)
2
Strong currency
3
Energy sector slowdown
4
Uncertainty (including US elections)
5
Tightening bank standards for
corporate credit and higher inventories
Businesses
have adjusted
to these
headwinds by
postponing
investment
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KEY CONTRIBUTIONS TO GDP GROWTH
Exports have
declined
Residential
investment is a
moderate
positive
Lower Federal
investment
spending is a
drag
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CEO CAPITAL SPENDING OUTLOOK
After period of
weakness, CEO
outlook improved
somewhat in
2016Q2 and Q3
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QUARTERLY US GDP GROWTH
Expect modest
strengthening
going into 2017
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TWO SEPARATE TRAJECTORIES OF TRAVEL PROPENSITY
Business and leisure trip propensity
Leisure travel
continues to
expand…
U.S. Domestic Travel, 1994=100
120
110
100
Leisure trips per employee
90
Business trips per employee
80
…even as
business travel
remains
tempered
70
60
1994
1998
2002
2006
2010
2014
Source: U.S. Travel Association, Tourism Economics
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SECULAR SHIFT OF SPENDING TOWARD LODGING
Consumer spending on lodging
Real, per capita GDP and spending on lodging
Percentage change since 1980
300%
245%
Spending on lodging has increased
245% since 1980 (real, per capita
basis)
250%
200%
150%
78%
100%
GDP has increased 78% since
1980 (real, per capita basis)
50%
0%
-50%
1980
1985
1990
1995
2000
2005
2010
2015
Source: Bureau of Economic Analysis; Oxford Economics
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US CONSUMER SPENDING OUTLOOK
Factors favoring leisure travel
growth
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1
Steady job and income growth
2
Stronger consumer confidence
3
Improved household balance sheets
Expect
consumer
spending
growth in 2017
that is similar to
2016
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CONSUMER CONFIDENCE SURVEY
Favorable view
of “present
situation”…
… future
expectations
are more
cautious
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LABOR MARKET: SLACK TIGHTENS, WAGE GROWTH RECOVERS
Wage growth
for individuals
recently
recovered to
3.5% (Atlanta
Fed tracker)
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LABOR MARKET: QUITS AND LAYOFFS
Rising “quitrate” reflects
firming labor
conditions…
…and layoffs
are low
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HOUSEHOLD DEBT
Households
have reduced
debt levels…
…freeing
disposable
income for
future spending
growth
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HOUSEHOLD NET WEALTH
Home prices
and financial
markets have
boosted
household
wealth
Wealth effects
typically support
consumption
with a lag
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RECENT CONSUMER SPENDING ON LODGING
Consumer spending, US
Growth from Dec. 2011
Index (Dec. 2011=100)
140
Lodging (37.6%)
130
F&B (28.4%)
Recreation services (17.7%)
Consumer spending (17.7%)
Air (17.0%)
120
110
100
90
80
70
Motor vehicle fuel (-32.6%)
60
2011
2012
2013
2014
2015
2016
Note: Data is nominal, three-month moving average, seasonally adjusted and extends through July 2016.
Source: Bureau of Economic Analysis; Tourism Economics
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ADJUSTMENT TO A STRONGER US DOLLAR
Value of the
dollar in
2017:
• 18% stronger
than in 2014
• 8% stronger
than historical
average
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OVERSEAS VISITOR GROWTH
Dollar
appreciation
and weak
global growth
has slowed
inbound
travel
Expect
modest
growth in
2017
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RECENT INTERNATIONAL AIR ARRIVALS
Inbound air
passengers
continue to
grow…
… Brazil is
an exception
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OXFORD ECONOMICS GLOBAL RISK SCENARIOS: 2016Q3
Scenario
Odds
US
GDP
How the scenario unfolds
(2017)
Oxford baseline
Europe falters
post-Brexit
40%
5%
Global growth picks up supported by moderate rebound
in US, supportive monetary policy
2.3
UK gov’t proves ill-equipped to negotiate smooth EU
withdrawal, weakness in Italian banking system
contributes to contagion
2.2
Trump wins, implements policy proposals to a limited
degree (e.g. implements tariffs on Mexico and China, $1
trillion tax cut, immigration policy changes)
1.9
Trump wins, implements policy proposals to a
substantial degree (e.g. more severe tariffs, greater
fiscal cuts)
1.4
Trump presidency
weighs on US
17%
Trump: Adverse
scenario
3%
Secular
stagnation
10%
Demand weakness becomes ingrained in economies,
asset prices realign
2.1
15%
China’s policy makers recognize the unsustainability of
the current debt trajectory and lower growth targets, rein
in credit
2.1
10%
Recovery to date has been “investment-light”. In this
scenario, gov’ts resume investment spending,
stimulating growth.
2.6
Tighter policies in
China
Fiscal loosening
boosts global
economy
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SUMMARY
Outlook summary
Businesses
Companies retrenched in 2015 and 2016H1. Going
forward, headwinds persist, but steepest adjustment is
behind us. Expect modest business travel growth.
Consumers
Moderate consumer spending growth is anticipated to
continue, supportive of leisure travel growth.
International
inbound
Stronger dollar weighs on spending. Visits from UK and
Brazil expected to contract.
Risks
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Trump presidency, China tightening
Tourism Economics
SEPTEMBER 2016
Tourism Economics / Oxford Economics
All data shown in tables and charts is Tourism Economics / Oxford Economics’
own data, and is copyright © Oxford Economics Ltd, except where otherwise
stated.
To discuss further please contact:
Aran Ryan, Director of Lodging Analytics
[email protected]
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