UPDATED Outlook: Economic Uncertainty Certain
October 19, 2022 By Jamie Mageau, Director of Research Products, U.S. Travel Association
According to the most recent survey of economists, a recession in the coming months looks increasingly likely.
Despite tightening monetary policy, high inflation remains persistent, and according to the latest survey, 63% of economists anticipate a recession in the next 12 months, up from 49% in July’s survey.
- Even worse news: According to Bloomberg economic model projections, a U.S. recession is now effectively certain in the next 12 months.
Most economists’ forecasts are expecting GDP to contract in the first two quarters of 2023.
While consumer sentiment is trending upward, consumers have been pretty sour throughout 2022. Through the first 10 months of the year, consumer sentiment is lower than any year since the metric was developed in 1961.
- Continued uncertainty related to prices, financial markets and interest rates indicate a bumpy road ahead for consumers.
Still, the labor market is too hot. The unemployment rate remains at its lowest level since the late 1960’s and employment payrolls continues to grow. With demand for labor too high and supply too low, this will continue to put pressure on increasing wages—contributing to inflation.
- Even with a declining number of job openings, at 10.1 million, they remain significantly higher than an average of 7 million pre-pandemic.
- And workers are still quitting at a much faster rate than before the pandemic—even more so for leisure and hospitality employees.
Inflation showing little signs of retreating. Core inflation (excluding food and energy prices) jumped 0.6% for the second straight month in September—driven entirely by the service sector.
- Despite higher prices, consumers continue to spend down their savings, keeping inflation way too high.
What this means: Sustained inflation, more aggressive Fed monetary policy tightening and negative spillover effects from a weakening global backdrop is expected to push the U.S. economy into a mild recession in the first half of 2023.
Impact on the Travel Industry
What does this mean for the U.S. travel industry?
Leisure Travel: Despite inflationary pressures, consumers are well-positioned to weather a possible downturn. Household finances and a strong labor market continue to support leisure travel—particularly for higher income households who tend to travel more frequently.
Business Travel: Continued economic uncertainty and worries of a looming recession are expected to slow, but not reverse, business travel’s slow-but-steady recovery progress.
- Group travel demand has remained fairly resilient as pent-up demand and rescheduling of postponed events continue to drive business.
- Still, many businesses are expected to pull back on investments, negatively impacting business travel demand in 2023.
International Inbound Travel: A strong dollar, unstable global economies and long U.S. visitor visa wait times are strong headwinds that are likely to slow the recovery of international inbound travel.
In This The Itinerary
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