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Tension In The Air

Lodging Industry Express Caution About 2020 During ALIS Conference

Wednesday, January 29, 2020
Dennis Nessler
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The tone at this week’s Americas Lodging Investment Summit (ALIS) can best be described as tense as concerns were expressed about declining profitability, the rapidly spreading Corona virus and a number of geopolitical issues that could negatively impact the overall economy and as a result the U.S. hotel industry.

Taking place under the backdrop of a tragic helicopter crash that took the lives of former NBA star Kobe Bryant and eight other passengers just north of Los Angeles the day prior to the event, the mood of the conference—held at the JW Marriott just across the street from the Staples Center in Los Angeles—was decidedly somber.

In a panel entitled “The Economist Outlook: How Close To The Edge Are We?” the panelists confirmed that they expect U.S. economic growth to slow in 2020 due to a number of factors, but they also remained relatively bullish on the overall outlook.

Richard Barkham, chief global economist/head of research, CBRE, tempered the potential economic impact of the aforementioned Corona virus after moderator Simon Hobbs, LPL Financial Advisor, California Financial Partners, pointed out that parts of China were being shut down as a result.

“We’ve got to get these things in context. For example, SARs killed 700 people. On average in America every year about 60,000 people die of ordinary flu. So honestly it’s the way the press kind of deals with this and hypes it up. Certainly it can affect travel, certainly it can affect local areas, but will it knock a powerful economic expansion in the U.S. off its tracks? I don’t think so,” he said.

According to Ryan Severino, chief economist, JLL, the impact is hard to predict. “It might not be that big of a deal or it might be worse than we think,” he said.

Meanwhile, both weighed in on just how much geopolitical issues, including a potential war with Iran, could alter the economic picture.

Similar to the Corona virus, Barkham downplayed any potential long-term impact.
“They might weaken a quarter’s growth, they might have a specific local impact but they have very little impact on the overall trajectory of the U.S. economy,” he said.

Barkham later added, “that’s not to say cycles can’t end, clearly they do.”

However, Severino maintained that when combined with other factors, geopolitical issues can have a substantial impact.

“It’s a wild card. In and of itself they tend to be a lot of background noise and not have an outside impact, but you get the wrong thing happening at the wrong time or the wrong combination of things or if you get a fear associated with the unknown. I’m not saying it would be catastrophic but at the margin you can see where some of this [could have an impact],” he said.

Both economists agreed that the U.S. Federal Reserve raising interest rates remains one of the biggest factors impacting the overall economy. Severino sees the recent lack of activity as a further indication that overall conditions remain relatively positive.

“They’re [U.S. government] clearly not acting in a manner that’s causing a lot of consternation because you’re not seeing the kind of imbalances, certainly in the financial part of the economy, that normally signal what could be eventually coming to an end. They’re just not there,” he said.

Nevertheless, Severino did express some concern that the upcoming U.S. presidential election could impact the outlook a bit.

“When there’s uncertainly about the outcome and people believe that policy decisions might be different contingent upon that outcome than they might be circumspect in how they approach things. Businesses tend to be a little more cautious about spending. It’s one of the things when I look at the economy this year and I see it downshifting a bit, I think it’s a contributing factor. It’s not an overriding factor but certainly not something to discount too lightly,” he said.

Meanwhile, according to Jeff Higley, president, The BHN Group, a survey of ALIS delegates revealed that some 60 percent expect President Donald Trump to be re-elected despite the ongoing impeachment proceedings.

Barkham agreed. “It’s very difficult to unseat an incumbent president when the economy is growing. That’s simple logic. So I think we expect four more years,” he said.

Barkham further predicted if President Trump is re-elected there will be a trade war with Europe, specifically Germany and its auto industry.

“I think if he gets re-elected it will be interesting to see how disruptive it can be,” added Severino.

One of the linchpins of the current U.S. economy has been robust employment growth and historically low levels of unemployment, but Barkham did indicate that could be slowing.
“I don’t think employment growth will cease but I don’t think it will grow by 250,000 a quarter, maybe more like 150,000. That equates to CEOs and CFOs in businesses thinking now is a good time to clamp down on travel and entertainment costs,” he said.

Meanwhile, Higley provided some more perspective from the some 3,000 delegates of the ALIS conference.

For example, he noted that 59 percent of ALIS attendees surveyed expect the economy to be flat in the coming year compared to 2019, and 32 percent are expecting an increase while just 10 percent are anticipating a decline. “Most people are still very optimistic about what’s going to happen in the economy,” said Higley.

In terms of RevPAR expectations, 38 percent of delegates expect an increase, while 29 percent expect a decline and 32 percent expect little or no change.

Dennis Nessler    Dennis Nessler
Hotel Interactive®, Inc.
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