Outlook for the Global Economy and Travel Adam Sacks President Tourism Economics @adam_sacks November 2018
Let s pose some questions What s happening now? Outline What could go wrong? What s backwards? What s ahead?
WHAT S HAPPENING NOW?
Broad-based global growth World GDP by major market in 2018 % change India China World United States South Korea Australia Mexico Canada Brazil France Germany United Kingdom Japan Source: Oxford Economics 0.0% 2.0% 4.0% 6.0% 8.0%
Momentum peaked early in the year
Global trade is a major reason why World trade and world trade indicators % year 25 20 15 10 5 0-5 -10-15 CPB world trade Coincident indicator (smoothed) -20 Leading indicator (smoothed) -25 2004 2006 2008 2010 2012 2014 2016 2018 Source : Oxford Economics/Nederland CPB
Consumers remain exuberant
High labor market utilization rate
Wage growth picking up
and income is outpacing spending!
Business capex spending peaking this year Economic momentum remains strong heading into Q4. Manufacturing and service sectors are resilient (for now) in the face of trade uncertainty.
Travel in 2018: unabated growth US Travel Indicators year-over-year % change 8% 6% Hotel room nights Domestic air pax International air pax Two quick observations: Flying has increasingly been the mode of choice International is slowing 4% 2% 0% 2018q1 2018q2 2018q3 Source: STR, BTS, Tourism Economics
Travel in 2018: unabated growth (Beware: slowdown ahead)
WHAT COULD GO WRONG?
Risks worth watching Trade war escalation Policy dynamics (fiscal and monetary) Financial market stress
Escalation could mean tariffs on all China imports!
Everyone loses in a trade war
A cautionary tale y/y % change 80.0 Spending and arrivals before and after China's South Korea travel boycott Forecast 60.0 40.0 20.0 0.0 2012 2013 2014 2015 2016 2017 2018-20.0-40.0 Tourism boycott -60.0 Source: Tourism Economics Spending from China Arrivals from China
Risks worth watching Trade war escalation Policy dynamics (fiscal and monetary)
US policy to support growth into 2019 Tax Cuts & Jobs Act is worth $1.5 trillion over the next decade. Real GDP in 2018 is boosted by 0.4ppt. Bipartisan Budget Act boost discretionary spending by $300 billion and provides $90 billion in disaster relief. Adds 0.25ppt to GDP in 2018.
Fiscal policy effect counterbalanced by monetary policy And as this is happening 1. Reduced marginal fiscal stimulus 2. Higher inflation 3. Tighter Fed stance 4. Wider deficit 5. Higher long-term borrowing cost 6. More protectionism
Fed s balancing act could prove challenging Faster inflation could lead to a more hawkish Fed and a market indigestion A wider a budget deficit and reduced asset purchases from the Fed could push up long term rates
Higher gasoline prices pushing up inflation
Energy prices & reduced slack push inflation higher US: CPI inflation Food contribution Energy contribution %, year 3.5 Core contribution 3.0 Headline CPI 2.5 2.0 1.5 1.0 0.5 0.0-0.5-1.0-1.5-2.0 2014M01 2015M01 2016M01 2017M01 2018M01 Forecast Source: Oxford Economics
Risks worth watching Trade war escalation Policy dynamics (fiscal and monetary) Financial market stress
Financial market stress A lasting 10% stock market decline would shave 0.5pp from GDP growth (This is different from a correction from short term peak)
We all love a good cliffhanger The US economy is 111 months into the economic expansion. The longest expansion on record was 120 months. GDP is on track for 2.9% growth in 2018. If it hits 3.0%, it would be the fastest growth since 2005. The unemployment rate fell to 3.7% in September, the lowest on record since 1969. Equities remain near record highs. Household net worth is 26% ahead of prior peak.
Dreaded Recession? Not foreseeable US: Probability of a recession 6 months ahead Percent, 6months lead 100 90 80 70 Using the Chicago Fed National Activity Index, the real federal funds rate & the yield curve Recession shading Although uncertainties have increased this year, risks have been greater over much of the past decade. 60 50 40 30 20 10 0 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013 2018 Source : Oxford Economics
US economic growth is anticipated to slow, but remain positive Despite a trifecta of policy risks trade, fiscal and monetary the economy should maintain momentum heading in to 2019. Our October baseline forecast is for 2.5% GDP growth in 2019.
Nevada economy is outpacing the US in job growth Total Employment (2010 = 100) 120 115 110 Nevada (+20%) US (+13%) 105 100 95 90 2010 2011 2012 2013 2014 2015 2016 2017 Source: BEA, BLS, Tourism Economics
WHAT S BACKWARDS?
Normal: transient room demand drives growth Lodging demand by segment US, trailing twelve months, index (2008=100) 150 140 Transient +45.9% since 2008 130 120 110 100 90 80 Group -9.4% since 2008 70 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Note: Data through September 2018. Source: STR
Now: Group room demand is leading the charge! Transient and group room demand US, annual growth 10% Transient 5% 0% -5% Group -10% -15% -20% 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Note: Capital expenditures measured as nonresidential fixed investment, private, real. Source: STR; BEA; Oxford Economics
Why: businesses are spending freely Group demand and capex spending US, annual growth 15% 10% Capex 5% 0% -5% Group demand -10% -15% -20% 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 Note: Capital expenditures measured as nonresidential fixed investment, private, real. Source: STR; BEA; Oxford Economics
Normal: room supply surges as demand falters
Now: room supply growth is softening The number of rooms under construction has declined in nine of the last ten months.
Market-level supply pressures are easing
Normal: international travel outpaces domestic Room demand and international travel to the US 2006=100 160 150 International visits 50% growth 140 130 120 Room demand 20% growth 110 100 90 80 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: STR; NTTO; Tourism Economics
Now: domestic demand is leading growth Room demand and international travel to the US 2006=100 160 150 International visits 50% growth -1.0% over past two years 140 130 120 110 Room demand 20% growth +4.2% over past two years 100 90 80 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: STR; NTTO; Tourism Economics
At least international visits grew last year! International visits to the US by region 2017 % Change 6% 5.2% 4% 2% 0% 2.0% 1.8% 2.0% 0.7% 1.5% -2% -4% -6% -8% -10% -12% -12.0% -14% Total Overseas Mideast Africa LATAM Europe Asia Source: NTTO,
But this year appears to be slowing down US Overseas Non-Citizen Arrivals year-over-year % change 16% 14% 12% 11% 10% 8% 6% 4% 2% 0% -2% 0% 4% -1% 5% 2% 0% 0% 4% -4% Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Source: APIS (DHS)
The dollar remains relatively strong
Normal: Emerging markets post double-digit growth US Inbound Arrivals 2007=100, 10-year CAGR 900 800 700 China (23%) 600 500 400 300 200 100 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Brazil (12%) S Korea (11%) Australia (7%) Germ, Can, MX, UK (0-3%) Source: NTTO
Now: China and S. Korea flirting with no growth International visits to the US in 2018 % change, Jan-Sep YTD Germany Japan South Korea China Argentina Overseas Australia United Kingdom Israel India Spain France Canada Netherlands Italy Mexico Brazil -7% -5% -1% 1% 2% 2.3% 3% 3% 6% 7% 7% 8% 8% 9% 10% 10% Major market underperformance = subpar growth 14% -10% -5% 0% 5% 10% 15% Source: Tourism Economics
Normal: +700 million unused vacation days Days Away on Vacation Annual vacation days per worker 22 21 Long-term average: 20.3 days 20 19 18 17 16 15 Vacation days Long-term average 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 Note: Estimates are based on survey results for 2013 to 2017 (GfK and Beresford Research). Estimates for earlier years are based on analysis of BLS data. Source: Oxford Economics
Now: 1.5 more days!! Days Away on Vacation Annual vacation days per worker 22 21 Long-term average: 20.3 days 20 19 18 17 16 15 Vacation days Long-term average 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 Note: Estimates are based on survey results for 2013 to 2017 (GfK and Beresford Research). Estimates for earlier years are based on analysis of BLS data. Source: Oxford Economics
Reversal in trends for both short and longer trips Full and Partial Week Vacations 24-month moving avg, % of employed adults 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Full week - out all week for vacation Partial week - out part of week for vacation 75 80 85 90 95 00 05 10 15 Sources: Oxford Economics analysis of BLS survey results
WHAT S AHEAD?
Economic growth continues, while slowing in key markets World GDP by major market % change India China World United States Australia South Korea Mexico Germany Canada France Brazil United Kingdom Japan 2018 2019 Source: Oxford Economics -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0%
ST outlook: travel demand is tapping the breaks August CTI, 3-month and 6-month LTI Index (>50=expansion, <50=decline) 53 CTI 3-mo LTI 6-mo LTI 52 51 50 49 48 Total International Domestic Business Leisure Source: U.S. Travel Association, Oxford Economics
Travel continues to gain American wallet share Consumer spending, US Index (Dec. 2011=100) 150 140 130 120 Growth 2011 to August 2018 Lodging (44.7%) F&B (44.1%) Recreation services (36.1%) Consumer spending (30.4%) Air (23.7%) 110 100 90 80 Motor vehicle fuel (-14.2%) 70 60 2011 2012 2013 2014 2015 2016 2017 2018 Note: Data is nominal, three-month moving average, seasonally adjusted and extends through August 2018. Source: Bureau of Economic Analysis; Tourism Economics
All age groups are spending more on travel, led by seniors Recent household spending on lodging by age Difference relative to long-term average 16% 20% 23% 24% 12% 8% 8% 1% All households Under 25 25 to 34 35 to 44 45 to 54 55 to 64 65 to 74 75+ Household age brackets Note: Recent constant dollar spending (2013 to 2015) relative to long-term average for the same age brackets (1984 to 2015). Source: BLS; Tourism Economics
Opportunity: New traveling households Added households with income > $35,000 2027 vs. 2017 Germany Spain Australia Venezuela Canada Italy Argentina France UK Mexico South Korea Russia Brazil USA India China 1.2 1.3 1.5 1.5 1.6 1.6 2.1 2.5 2.6 2.8 2.8 3.0 3.8 0 5 10 15 Millions Source: Tourism Economics,constant 2015 prices 8.7 9.4 64 million
New traveling households ($100k threshold) Added households with income > $100,000 2027 vs. 2017 Argentina Venezuela Mexico Brazil Russia Spain Italy South Korea France Canada India Australia Germany UK China USA 0.1 0.1 0.2 0.2 0.3 0.4 0.6 0.6 0.6 0.8 0.9 1.0 1.2 1.7 0 2 4 6 8 10 Millions Source: Tourism Economics,constant 2015 prices 5.7 8.4
Strength of demand is setting new norms (and trending upward) Room nights per capita, US Annual room nights 4.0 2018 Q2: 3.8 room nights per capita 3.5 3.0 2.5 2.0 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 Note: Seasonally adjusted Source: STR; Tourism Economics
Further demand gains anticipated in line with GDP
But the slowdown is underway Room demand and GDP % change 10% 8% 6% 4% 2% 0% GDP Demand 4.0% 2.5% 1.5% 2.5% 2.4% 2.0% 1.5% -2% -4% -6% -8% 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Note: Real GDP. Source: STR; BEA; Tourism Economics
Journey to normalcy resumes in 2019 US Visits year-over-year % change 5% 4% Domestic overnight Overseas 3.4% 4.5% 3% 2% 2.7% 2.4% 2.1% 1.5% 1% 0% 2018 2019 2020 Source: U.S. Travel Association, Tourism Economics
SOME CLOSING THOUGHTS
Tourism is a major contributor to Nevada s economy Key facts In 2017, 56.3 million visitors spent nearly $40 billion in Nevada Visitor spending has increased 15% since 2013 Tourism generates $4,560 in state and local taxes for every household in Nevada Tourism Economics 64
High marks in terms of growth and contribution to households 1 Visitor spending reached nearly $40 billion in 2017, increasing 2.4% over the prior year 2 Visitor spending is increasing and has been for eight straight years Tourism employment has increased 5.1% since 2013 Consistent visitor spending growth has positively impacted tourism employment in Nevada Share of total Nevada employment and income sustained by tourism Income Employment 14.1% 17.2% Direct Indirect Induced 4.0% 4.3% 4.3% 22.3% of total state income 26.8% of total state employment 5.3% 0% 5% 10% 15% 20% 25% 30% Percent of state total Source: Tourism Economics; BEA
How important is the Nevada tourism sector? Tourism spending $109 million was spent EVERY DAY by visitors to Nevada. Taxes The $4.7 billion in state and local tourism taxes would cover the starting salaries of nearly 124,000 state school teachers Employment The number of jobs sustained by tourism (458,780) is nearly double the population of Reno. Income The $20.1 billion in total income generated by tourism is the equivalent of $19,500 for every household in Nevada.
The need for destination promotion Challenge Solution: Destination Promotion 1 The primary motivator of a trip is usually the experience of a destination, not just one business Articulates the brand message that is consistent with consumer motivations 2 Effective marketing requires scale to reach potential visitors Pools sustained resources to provide the economies of scale and marketing infrastructure required to generate impact
How destination promotion drives the economy
Don t take my word for it Air service is profoundly important to corporate investment and location decisions This is one of tourism s most significant contributions since the levels of air service at New Orleans far exceed what local demand could support. Secretary, Louisiana Economic Development Every tourist that comes through here is a potential business lead. As we talk to prospects, they mention past visits and good experiences. This is our open door If we do it right, the ideal brand will transcend the visitor market and support all economic development. President & CEO, World Business Chicago Executive Director, Economic Development Coalition for Asheville Economic Development Executive Officer, City of Phoenix We are learning a lot from Visit California how to take their model and apply it to economic development. Deputy Director, Governor s Office of Business and Economic Development Traveler attractions are the same reason that CEOs choose a place. President & CEO, World Business Chicago
Key things to remember Right now What could go wrong What s backwards Broad-based (but slowing) economic growth Great US fundamentals Travel leading the charge Trade war Fiscal and monetary policy Inflation Market correction Business travel leading Room supply under control International faltering (emergers!) Americans vacationing What s ahead Global and US economies will slow Near term travel outlook: tempered performance Demographics and income trends favor travel gains Normalcy