Hotel Online News for the Hospitality Executive By Mark Woodworth and Jamie LaneFebruary 1, 2013 The Commerce Department released a negative estimate of real GDP change for fourth quarter. Given the correlation between changes in GDP and the demand for hotel rooms, is this an ominous sign for the U.S. lodging industry? We do not think so, and here’s why: First and foremost, the Commerce Department statistic represents the quarter-to-quarter change in GDP. Because of the seasonal nature of lodging demand, the GDP measure that is typically more comparable to hotels is the year-over-year change in GDP, which was up 1.5 percent. According to Smith Travel Research (‘STR’), rooms sold in the U.S. increased by 3.1 percent for the final three months of 2012, which resulted in an increase in Revenue per Available Room (‘RevPAR’) of 6.5 percent for the period. It should also be noted that both of these numbers compare favorably to the STR data for Q3 2012, which were +1.8 percent demand growth and a 5.1 percent increase in RevPAR (the year-over-year increase in GDP for Q3 2012 was 2.6 percent). The contraction of 0.1 percent reported by the Commerce Department was caused mainly by a decrease in military spending and weaker exports. Over the past few years we have focused our research on understanding the components of GDP and which ones mean the most to the changes in demand for hotel rooms. Two findings from our research are that changes in personal consumption expenditures and business investment matter the most. Personal consumption expenditures expanded at a 2.2 percent annualized rate in the fourth quarter which was the second highest quarterly increase experienced since the beginning of 2011. Business investment also grew steadily, rising 8.4 percent. Exports and government expenditures, which were the major factors leading to the decrease in GDP, generally have minimal effect on the performance of hotels at the national level. Exports declined 5.7 percent during the quarter while spending at all levels of government fell by 6.6 percent. Followers of our work know that we rely on economic forecasts prepared by Mark Zandi and his team at Moody’s Analytics. The Moody’s forth quarter GDP forecast variance-to-actual was approximately 1.0 percent, which is almost entirely due to the surprising contraction in government spending for the quarter. Their component forecasts for personal consumption and business investment were spot on. This also helps to explain why our demand forecast for fourth quarter 2012 of 3.1 percent ended up being 100 percent accurate! Overall we still continue to feel optimistic about the prospects for the hospitality industry and do not see any reason for concern from this latest release.
About PKF CONSULTING USA, LLC Headquartered in San Francisco, PKF Consulting USA, LLC (www.pkfc.com) is an advisory and real estate firm specializing in the hospitality industry. PKF Consulting USA is owned by FirstService Corporation (FSRV) and is a subsidiary of Colliers International. The firm operates two companies: PKF Consulting USA and PKF Hospitality Research. The firm has offices in New York, Boston, Portland ME, Indianapolis, Chicago, Philadelphia, Washington DC, Atlanta, Jacksonville, Tampa, Orlando, Houston, Dallas, Los Angeles, Bozeman, and San Francisco.
Contact: Mark Woodworth, President, PKF Hospitality Research, LLC 404 842 1150 ext. 222[email protected] Jamie Lane, Economist PKF Hospitality Research, LLC 404 809 3950[email protected] Also See: Will the Grinch Steal Our Positive Lodging Outlook for 2013? Tune in to Watch PKF Hospitality’s Mark Woodworth and Cornell’s Jack Corgel Discuss Current Conditions and Forecasts / December 2012 PKF Hospitality’s Mark Woodworth and Cornell’s Jack Corgel Discuss Cap Rates and Hospitality Investment Conditions / October 2012 Bucking Economic Trends, Continued Record Levels of U.S. Hotel Demand Leads to Improved RevPAR and Profit Projections Forecast by PKF Hospitality Research / August 2012 Caribbean Hotel Profits See Largest Increase Since 2008 Reports PKF Hospitality Research / August 2012 Hotel Lenders and Investors at Ease with Direction of Investment Market According to PKF’s 2012 Hospitality Investment Survey / July 2012 PKF Lodging Forecast for U.S. Remains Strong Despite Lingering Levels of Uncertainty / June 2012 U.S. Hotel Profit Recovery Shared by Nearly All Hotels with an Average of 12.7% Profit Growth According to New PKF Trends® Survey / May 2012 PKF Hospitality Research Forecasts RevPAR for U.S. Hotels to Rise 5.8% in 2012; Stage Set For Increased Capital Investment / March 2012 Hotel Spas Lag Industry Recovery / Andrea Foster / March 2012 Will Meetings Market Recovery Continue In 2012? / Robert Mandelbaum / February 2012 Hotel Managers Labor To Control Labor / Robert Mandelbaum / January 2012 2010 Was A Budget Beater For U.S. Hotels; Looking Forward – 2012 Should Result in a 15.2% Rise in Profits for the Average U.S. Hotel / Robert Mandelbaum / October 2011 U.S. Hotel Utility Costs Under Control Adding to the Bottom Line / Robert Mandelbaum / September 2011 Price Begets Profits / Robert Mandelbaum / August 2011 One Night Stands Are Expensive / Robert Mandelbaum / July 2011 Hotel Food and Beverage: Locals Up, Lounges Down / Robert Mandelbaum / June 2011 FREEBIES: Hotels Give Some Things for Nothing / Robert Mandelbaum / April 2011 Hang Up The Phone And Hold The Starch, But Please Park The Car / Robert Mandelbaum /February 2011 Meeting Planners Optimism Rising / Robert Mandelbaum / January 2011 How Profitable Will Your RevPAR Be In 2011? / Robert Mandelbaum / December 2010 No Show – No Problem; Hotels Profit from Attrition and Cancellation Income / Robert Mandelbaum / November 2010 Right Direction – Wrong Amount: Hotel Managers Underestimated 2009 Declines in Performance / Robert Mandelbaum / October 2010 Surprised, or Stubborn? U.S. Hotel Managers Missed Their Budgets In 2008 / Robert Mandelbaum / October 2009