Economic uncertainties could spell trouble for U.S. hotel industry

Photo credit: Pixabay/Gerd Altmann

Has the United States hotel industry hit a rough spot? Maybe so, if recent research is any indication.

According to PwC’s updated lodging outlook in its “Hospitality Directions US” report, second-quarter results came in significantly below the company’s expectations. Average daily rate was up 1.2 percent, while occupancy was down 0.1 percent. This resulted in revenue per available room only increasing 1.1 percent.

Since the beginning of the recovery, RevPAR across the U.S. has increased at a compound annual growth rate of 5.4 percent, according to PwC. Last year, the metric grew just 2.9 percent. By comparison, RevPAR is up only 1.2 percent for the first six months of 2019. PwC analysts said that recent weak performance and trends point to a continued deceleration in top-line performance through next year.

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That said, PwC expects that in 2020 supply growth will hit 1.9 percent in the U.S., and demand also will grow 1.9 percent. Occupancy is anticipated to decline slightly to 66.1 percent. Meanwhile, ADR growth of 1 percent will continue to drive a 1 percent RevPAR increase. That RevPAR growth will be the metric’s lowest in a decade, according to PwC.

The company’s outlook is challenged by continued trade tensions and effects from tariffs. Additionally, political uncertainty both domestically and abroad is causing concern. Slowing economic growth and pressure on inbound leisure travel from China due to the yuan’s devaluation also are worrisome for the industry.

Related Story: International travel to U.S. continues downward trend

The U.S. Economy

Although uncertainties about what the future holds for the economy are circling, PwC noted that current fundamentals appear on solid footing. Inflation concerns have reduced for the near term thanks to moderating commodity prices, decreasing oil prices, a strong dollar and slowing global growth, according to PwC. Inflation is expected to increase 1.7 percent this year, while it is forecasted to grow 2.1 percent in 2020.

Additionally, at the end of July, the Federal Reserve announced a 0.25-percent cut in the federal fund rate for the first time since December 2008. But while previous cuts from the Fed were reactionary, analysts said this current slash is proactive in anticipation of tariff-rate implementation, slowing growth in China and uncertainty around Brexit arrangements. Consumer spending also is expected to slow.

Meanwhile, real gross-domestic-product growth is expected to decelerate to 2.2 percent in the fourth quarter of this year, according to IHS Markit economists. That figure contrasts to 2018’s 3 percent growth in the fourth quarter. In 2020, GDP growth is expected to slow to 1.8 percent in the same quarter.

Related Story: Report: Pricing power expected to slow for U.S. hotels in 2020

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