Adam Sacks of Tourism Economics presented an outlook for the U.S. economy and travel industry for 2020 and 2021 on the heels of Congress passing the $2-trillion CARES Act last week.
REPORT FROM THE U.S.—The U.S. government approved the largest federal stimulus in the country’s history last week in response to the coronavirus (COVID-19) pandemic, and it’s unlikely to be the only aid package of its kind over the remainder of the crisis.
During a webinar on the CARES Act presented Wednesday by Asian American Hotel Owners Association’s Hotel Owners Academy, Tourism Economics President Adam Sacks said the recession caused by coronavirus will be much worse than the Great Recession. He added he expects GDP will decrease by 3.1% in 2020.
“This would mark a severe, severe recession that will be much, much sharper than what was experienced during the great financial crisis just by virtue of comparison,” he said. “That doesn’t mean it’s going to last as long, but it does mean it will certainly be sharper.”
The U.S. travel industry is projected to lose $400 billion in 2020, Sacks said.
“It is seven times the impact of 9/11 on traveler spending based on our current projections,” he added.
To understand the severity of the coronavirus hit to the economy and the scope of the government’s response, Sacks compared the CARES Act to the stimulus bills passed leading up to the Great Recession.
“We've basically matched and actually exceeded that (Great Recession) stimulus in essentially one bill,” he said. “And there are more bills to come. But just to put it into contrast how much the federal government is putting down to try to counteract the negative economic effects of this crisis, it's truly remarkable and historic. And I should add it’s necessary, because the travel industry is facing a challenge unlike ever before.”
It’s highly likely that government officials will need to pass more stimulus relief this time around, Sacks said.
“If we’re looking at another month of advisories to stay at home, the impact of the travel industry and the broader economy is going to continue to deepen,” he said. “It’s going to produce a need that, as massive as this bill is, is going to require additional stimulus. The makeup of that is very much uncertain at this point, but we realistically can expect more given that we’ve just about matched the stimulus of the great financial crisis, and we’re probably looking at more economic carnage from this particular crisis.”
Labor, demand and revenue
During the week of 22-28 March, the total number of Americans who filed for unemployment rose to 6.65 million, up from 3.3 million during the prior week. Sacks said the U.S. has yet to hit the peak of coronavirus-related unemployment claims.
“Right now, we’re looking at about 30 million jobs that are immediately at risk, certainly those within leisure and hospitality … But when all is said and done, when we hit the trough, the unemployment rate is going to be between 10% and 15%,” he said. “That’s a dramatic shift from just 3.5% back in February.”
STR and Tourism Economics released an update to their hotel industry forecast for 2020 and 2021 on 30 March, projecting a 50.6% drop in revenue per available room for 2020. Sacks added during the webinar that 2020 U.S. hotel roomnight demand is projected to be 51% lower than 2019, and still down 11% in 2021 as the economy recovers. (STR is the parent company of Hotel News Now.)
“We expect (2020 demand) to be roughly half of what it was in 2019,” Sacks said. “Again, that assumes things do begin to improve as we move through the rest of the year. We expect a sharp recovery in 2021, both by virtue of an economic rebound and pent-up demand for travel. That said, it’s still 11% below 2019 levels of room demand.”
STR and Tourism Economics forecast 2020 room revenue to be 58% lower than in 2019, and with rates slow to catch up once people start traveling again, 2021 room revenue could still be 21% lower than in 2019.
The first opportunity for recovery will come in 2021, assuming COVID-19 travel restrictions are loosened over the summer of 2020, Sacks said.
“As we’ve looked at crises over the last four decades, looking at both travel and the economy, the likelihood of an economic rebound in 2021 is very, very high,” he said. “The economic recovery is likely to be very, very strong. And it doesn’t mean that there’s not going to be economic damage to repair, particularly within labor markets.
“But there’s going to be pent-up demand for travel. There’s going to be pent-up demand for investment and consumption … And so GDP next year is likely to grow some 4%.”