Business Activity in the U.S. Hotel Industry Declined During August

Business activity in the U.S. hotel industry declined during August, according to the latest reading of e-forecasting.com’s Hotel Industry Pulse index, or HIP.

HIP, a composite index that gauges monthly overall business conditions in the U.S. hotel industry, declined to a reading of 106.6 in August, following a flat performance during July. The index was set to equal 100 in 2005.             

HIP's six-month growth rate, which has historically confirmed the turning points in U.S. hotel business activity, was up 2.5% in August, following a positive rate of 3% in July. This compares to a long-term annual growth rate of 3%, the same as the 30-year average annual growth rate of the industry's gross domestic product.

The probability of the hotel industry entering into recession, which is detected in real-time from HIP with the help of sophisticated statistical techniques, registered 16.2% in August, up from 14% reported in July. When this recession-warning gauge passes the threshold probability of 50%, the U.S. hotel industry enters a recession.

“With our latest August data report, we witness the first signs of weakness for the U.S. hotel industry. In August, the monthly and six-month growth rate both slowed,” said Evangelos Simos, chief economist of e-forecasting.com.

Two of the three demand and supply indicators of current business activity that constitute HIP had a positive contribution to its change in August: Hotel Jobs and Spending on Hotel. The current business activity indicator that had a negative or zero contribution to HIP's change in August was Hotel Capacity.

Continued Simos: “In the last 12 months , overall economic activity, measured by e-forecasting.com's monthly U.S. GDP, rose by 2.3%. Over the same period, economic activity in U.S. hotels, measured by HIP, increased by 2.3%.” 

Softness ahead

Looking forward, the Hotel Industry Leading indicator, or HIL, showed future softness in the U.S. hotel industry. HIL fell by 0.2% in August to 110.9, following an increase of 0.4% in July. The index was set to equal 100 in 2005.

In addition to a monthly decline in overall growth, the six-month growth rate of HIL also weakened, posting 1.8% in August after registering 2.6% in June.

The probability of the U.S. hotel industry entering a recession in the future also increased. Future recession risk increased from July's low probability of 2.6% to 17.2% in August. In comparison, the risk of upcoming recession in the U.S. economy, based on e-forecasting.com's eLEI, U.S. economic leading indicator, registered 19% in August.

Four of the forward looking indicators of business activity that comprise Hotel Industry Leading (HIL) Indicator had a positive contribution to its change in August: Foreign Demand; Yield Curve; Housing Activity, and Vacation Barometer. Five indicators of future business activity had a negative or zero contribution to HIL's change in August: Jobs Market; Hotel Worker Hours; Hotel Profitability; New Orders and Oil Prices.

“In the course of one month, both of our overall U.S. hotel industry indicators have turned slightly down. With August actual performance data as represented by the HIP, we see a slowdown for the close of summer. And with the HIL we see that the late fall and early winter will have less business activity than the summer months,” Simos said.

The Hotel Industry Pulse index, or HIP for short, is a hotel industry indicator that was created to fill the void of a real-time monthly indicator for the hotel industry that captures current conditions. The indicator provides useful information about the timing and degree of the industry’s link with the US business cycle for the last four decades. Simply put, it tracks monthly overall business conditions in the industry, like an industry GDP, and points in a timely way to the changes in direction from growth to recession or vice versa. The composite indicator is made with the following components: revenues from consumers staying at hotels and motels adjusted for inflation, room occupancy rate and hotel employment, along with other key economic factors which influence hotel business activity.
                                                                                                  
The Hotel Industry Leading indicator, or HIL for short, is a monthly leading indicator for the industry. Building off the tracking success of HIP, the real-time indicator for the US hotel industry, HIL was built as a composite indicator that uses nine different components that, on average, when put together have led the industry four to five months in advance of a change in direction in the industry business cycle. HIL provides useful information about the future direction of the US hotel industry.                                                 

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