PHOENIX—The Lodging Conference kicked off this morning with a handful of forecasts that weren’t at all spooky to hoteliers, many of whom are concerned that the pace of growth will slow considerably.
Bernard Baumohl, chief global economist, The Economic Outlook Group, LLC, offered some reasons for optimism in dissecting the overall economy.
He pointed out his company is expecting the U.S. economy to grow between 2 and 3 percent over the next two years through 2019. Baumohl attributed much of that projected spike to a build up of domestic demand in the U.S. as well as an economic rebound overseas. “Together they will provide I think a very good springboard for how the U.S. economy is going to perform over the course of the next two years,” he said.
Baumohl pegged the probability of a recession going forward at no more than 25 percent. He further added that he sees “this economic growth continuing whether or not we’re going to have a tax cut.”
He also delivered what he referred to as “quite intriguing”news when it comes to inflation. “We see the rate of inflation, consumer prices,still being very tame over the course of the next two years. It’s largely because there are some fundamental structural changes that have taken place that have altered the dynamics of shaping inflation. This is not just a U.S. pattern, we’re seeing this pattern all over the world,” said Baumohl.
Driven in part by the low inflation, the economist also maintained that interest rates should not pose a serious problem.
He also noted good news is far as interest rates. “As a result of that we expect interest rates—both short term and long term rates—to inch up slowly and ultimately I think it will peak out at levels much lower than historical patterns, “ said Baumohl.
He did further explain that there are two major caveats to the aforementioned predictions. The first is the potential for a war in the Korean peninsula and secondly the assumption that the appointment of the next Federal Reserve Chief by President Trump will be someone who believes in gradually raising interest rates.
Baumohl concluded by reiterating some of his earlier points. “When I look over the next 24 months we do expect to see stronger economic activity with inflation and interest rates really remaining quite tame,” he said, adding companies should have contingency plans in place to “mitigate losses” in the case of any geopolitical shock or disruption.
Meanwhile, Ali Hoyt, senior director, consulting and analytics, STR, provided a similarly positive update more specific to the hospitality sector. She noted, “For 2017 demand growth has really exceeded our expectations for continuing to outpace new supply.” She further added, “we expected demand to start trailing supply this year but we’ve pushed those projections forward.”
Hoyt pointed out that supply development cycle has experienced a much slower pace than previous cycles and remains below 2 percent on a trailing 12-month basis.
Hoyt did acknowledge there has been a lack of rate growth,particularly considering the peak occupancy level the industry has seen with 28 consecutive months of better than 65 percent. “Over the past 36 months we’ve seen rate growth slow from 4.5 percent to just about 2 percent on a trailing12-month basis. Certainly a contributing factor to that is the lack of transient pricing power that we’ve seen recently at upper-tier hotels,” she said.
Hoyt added she expects “modest RevPAR growth to continue for the next 3 months.” Thus far this year the industry has had RevPAR growth of 2.6 percent through September.
Hoyt concluded by conceding, “For 2018 we are forecasting supply to start outpacing demand causing a slight dip in occupancy.”