ECONOMIC OUTLOOK AND THE US LODGING INDUSTRY. Aran Ryan Director Tourism

Transcription

1 ECONOMIC OUTLOOK AND THE US LODGING INDUSTRY Aran Ryan March 22, 2017

2 Some historical perspective

3 Room demand expansion continues Pace of demand growth has slowed close to the rate of GDP growth.

4 The past seven years have been unusual Room nights per capita Annual room nights, working age population Q4: 4.8 room nights per capita Note: Seasonally adjusted Source: STR;

5 What s next?

6 Key takeaways Global economy accelerating Economic outlook and implications for lodging US consumers setting the pace Business confidence is elevated Risks: larger than they may appear

7 Key takeaways Global economy accelerating Economic outlook and implications for lodging US consumers setting the pace Business confidence is elevated Risks: larger than they may appear

8 Global growth weakest since 2009, but improving Global growth last year was the weakest since 2009, but momentum is improving.

9 Global industrial activity gaining momentum

10 and data releases have been tilted to the upside Economic data releases in developed countries have exceeded consensus.

11 Business has shrugged off Brexit for now

12 Excess global saving still a major constraint Advanced economies: Private sector net saving Household sector net saving Corporate sector net saving

13 Not much cyclical momentum for investment

14 China kicking the can down the road

15 Key takeaways Global economy accelerating Economic outlook and implications for lodging US consumers setting the pace Business confidence is elevated Risks: larger than they may appear

16 Household net wealth Home prices and financial markets have boosted household wealth Wealth effects typically support consumption with a lag

17 Households are spending less to service debt

18 Consumers have tilted spending growth toward lodging Consumer spending, US Index (Dec. 2011=100) Growth 2011 to Jan Lodging (41.8%) F&B (31.2%) Air (21.5%) Recreation services (21.0%) Consumer spending (20.7%) Motor vehicle fuel (-22.2%) Note: Data is nominal, three-month moving average, seasonally adjusted and extends through January Source: Bureau of Economic Analysis;

19 As we near full employment, wage growth is firming As labor force slack tightens, wage increases accelerate. Labor force slack is measured here as U6 unemployment minus U3 unemployment. Wage tracker measures median percent change in the hourly wage of individuals observed 12 months apart.

20 Consumer spending is solid but short of elevated confidence

21 Inflation represents a downside for real disposable income

22 Key takeaways Global economy accelerating Economic outlook and implications for lodging US consumers setting the pace Business confidence is elevated Risks: larger than they may appear

23 Business investment remains relatively weak Business investment slowed in 2015 and Nine quarter lull

24 However, the mood among CEOs has improved CEO expectations are the strongest since 2015Q1.

25 Manufacturing activity appears to have rebounded

26 Strong US dollar weighs on US exports Dollar has appreciated 19% since 2014 This puts it 8.6% above its historical average.

27 Three Fed rate hikes in 2017 and three more in 2018

28 US economy expected to accelerate

29 Key takeaways Global economy accelerating Economic outlook and implications for lodging US consumers setting the pace Business confidence is elevated Risks: larger than they may appear

30 Private sector confidence reaching new highs

31 as businesses still uncertain after elections

32 Current framework of global risks Probability Outcome 40% Baseline Stronger growth led by US; higher inflation; strong dollar; euro and yen weakness sustained 5% Le Pen victory sparks Eurozone crisis Oxford Economics Global Scenarios Service 10% Bond market sell-off Fed moves more aggressively; interest rates surge; global equities fall 10% Tighter policies in China 10% Trump presidency weighs on global growth Highly protectionist and isolationist stance; fiscal stimulus fails; by late-2019 US enters recession and by 2021 the economy is 6% smaller than baseline 25% US growth surges amid Trump fiscal stimulus Lower taxes; infrastructure spending; GDP growth peaks at 3.6% in 2018 (compared to 2.6%) Source: Oxford Economics Global Scenarios Service (March 8, 2017)

33 Greater realization of the risks

34 Three outcomes depending on which levers are pulled US: GDP growth % year Baseline Trump upside Trump downside Forecast How strongly will the scale tip in favor of fiscal stimulus rather than policy uncertainty, protectionism and immigration restrictions? Source : Oxford Economics/Haver Analytics

35 Sentiment toward the US is turning negative America first rhetoric US-Mexico relations strained Protectionism pulling US out of TPP; renegotiating NAFTA Travel Ban ; Extreme vetting Immigration stance Discussion of requiring international visitors to provide social media passwords

36 We ve seen this before Contrasting periods of time % change, CAGR 6% 5% 4% 3% 2% 1% 4.7% % 2.3% We anticipate a setback in overseas visits: 2017: -1% 2018: +3% 0% -1% -2% -3% -4% -3.0% Overseas visits Overseas GDP Note: overseas visits data are adjusted downward based on APIS results. This produces a 4.7% CACG compared with 6.0% with unadjusted I-94 data.

37 Implications for lodging

38 Economic activity to drive modest demand gains Room demand and GDP % change 10% 8% 6% 4% 2% GDP Demand 2.6% 1.6%1.7% 2.0% Demand growth to improve moderately this year and next, but will trail GDP growth 0% -2% -4% -6% -8% Note: Real GDP. Source: STR; BEA;

39 Two separate trajectories of travel propensity Business and leisure trip propensity U.S. Domestic Travel, 1994= Leisure trips per employee Business trips per employee Source: U.S. Travel Association,

40 Sustained setback in group activity Hotel Room Demand by Segment US luxury and upper upscale class hotels, trailing twelve months, index (2008=100) Transient +35.4% since ' Group +3.1% since ' Note: Data through February Source: STR

41 Supply growth remains moderate Rooms in construction as predictor of openings Rooms, in thousands In construction as of December of the prior year Actual opens during the year k rooms under construction to open this year points to supply growth of: 2017: 2.0% 2018: 2.2% Note: In construction limited to rooms under construction with planned opening date in the next year. Source: STR;

42 Disproportionate supply growth in certain markets Ten major markets with +5% new supply under construction

43 Late-cycle occupancy declines weigh on RevPAR Occupancy and ADR growth % change 9% 7% 5% 3% 4.2% 3.4% 2.4% 1.6% 5.6% 1.4% 3.8% 4.2% 4.6% 4.5% 3.8% 0.1% 3.1% 2.8% 2.8% ADR contribution RevPAR: 2016: 3.2% 2017: 2.5% 2018: 2.6% 1% -2% -0.3% -0.2% Occupancy contribution Source: STR;

44 Tighter labor markets bring wage cost increases Nominal wage growth by industry Twelve-month moving average of median wage growth, % % annual growth Leisure and hospitality: 3.9% Overall: 3.5% Note: Historical data through January Source: Federal Reserve Bank of Atlanta

45 Key takeaways Global economy is accelerating US consumers setting the pace Business confidence is elevated Risks: Larger than they appear Will policy deter or promote growth? But structural constraints point to only modest global growth over the next decade. Wage growth is improving, but inflation will act as an offset But will it drive spending and investment? Expectations rest on promised deregulation, lower taxes, and infrastructure spending. But antiimmigration and protectionist elements pose risks and inbound travel is particular exposed. Lodging will benefit from improved economic outlook and confident consumers, but demand growth will trail GDP. New supply growth weighs on ADR gains, even as cost inflation picks up.

46 March 2017 All data shown in tables and charts is own data, and is copyright Tourism Economics, except where otherwise stated. To discuss the topics further please contact: Aran Ryan