Economist: Hotel Sector Benefitting from Strong Consumer Confidence, Uptick in Income and Corporate Profits

ATLANTA — Roger Tutterow, director of Kennesaw State University’s Econometric Center, encourages hoteliers to be optimistic about today’s historic level of consumer confidence because it directly impacts the leisure travel side of the hospitality sector.

In late August, the consumer confidence index increased to 133.4, its highest level since October 2000, according to The Conference Board. The index gauges consumers’ confidence levels about business and labor conditions.

“This is still a consumer-driven economy, and it’s very important that we maintain those confidence levels,” said Tutterow, who was one of the featured speakers at Atlanta Lodging Outlook 2019.

The Atlanta Convention & Visitors Bureau, Cornell Hotel Society and the Georgia Hotel & Lodging Association jointly hosted the annual event, which took place on Tuesday, Sept. 4 at the InterContinental Buckhead hotel in Atlanta.

Spending Power Impacts Hotel Performance
Personal income gains and corporate profits also affect hotel absorption as these determine the spending power of leisure travelers and businesses. According to the Bureau of Economic Analysis, personal income increased by 3.5 percent over the past six months, while corporate profits rose 20 percent during the same period.

“You’ve got support both from the personal income and corporate profits side,” said Tutterow to the more than 300 hospitality professionals in the crowd.

Also helping increase the spending power of business and leisure travelers is the current stability in crude oil prices. Over the past 12 months the price of West Texas intermediate crude oil has risen nearly $20 per barrel to the current level of nearly $68 per barrel. That’s a “good price” for the hotel industry compared with four years ago when the price exceeded $100 per barrel, said Tutterow.

“We didn’t like $100 per barrel price for crude oil because it took the buying power out of the pockets of your leisure customers,” said Tutterow. “Now travelers stop off at hotels on road trips or stay an extra night.”

West Texas intermediate crude oil prices have risen and fallen sharply over the past 14 years. Tutterow says the current $68 per barrel price is a ‘good price’ for the hotel sector.

The U.S. hotel industry reported positive year-over-year results in three key performance metrics during the week of Aug. 26 through Sept. 1, 2018, according to data firm STR based in Hendersonville, Tenn. More specifically, occupancy rose 160 basis points to reach 67 percent; the average daily rate climbed 3 percent to $125.16, and revenue per available room increased 4.6 percent to $83.88.

Concerns Over Currencies
Among the various topics discussed, Tutterow singled out only one economic indicator that was truly worrisome — the strength of the U.S. dollar.

The U.S. dollar has strengthened relative to the world’s leading currencies in recent months. According to the ICE U.S. Dollar Index, which compares the U.S. dollar to six other leading world currencies, the U.S. dollar has increased by more than 4.5 percent in the past 12 months.

Tutterow said that a strong dollar is felt most acutely in manufacturing and trade as American-made products become more expensive to consumers abroad, but the U.S. hospitality industry isn’t immune to its effects either, especially in a global market such as Atlanta.

“You should worry about the dollar. The Atlanta market recognizes that global travel is an important component of absorbing hotel rooms and filling up restaurants,” said Tutterow. “When that dollar gets expensive, foreign travelers will view American hospitality destinations as more expensive.”

Mostly Sunny Outlook
Overall, Tutterow remains optimistic about the U.S. economy. Nothing in the data indicates a recession is imminent, he emphasized. In fact, America’s economy currently is in the 110th month of economic expansion, nearly doubling the 58-month average lifespan of economic expansions since World War II.

If the U.S. economy were to avoid a recession over the next 12 months, it would be the longest economic expansion in history, surpassing the expansion from March 1991 to March 2001.

Tutterow said that the durability of this current cycle doesn’t make it vulnerable because there’s no such thing as the economy “being due” for a recession.

“Economic expansions die because of bad policies, tariffs, taxes, inclement weather, military excursions and supply shocks that we can’t anticipate,” said Tutterow. “Economic expansions do not die of old age.”

— John Nelson

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