Monday, April 14, 2008

Further evidence of a new resistance to recession

If the U.S. economy were really deep in recession (which a lot of people are claiming started in November), you would expect to see a pronounced dip in air travel, but we are not. In fact, planes are still flying full. That was the case on my rcent trip to Colorado. An article in the New York Times by Susan Stellin entitled "Sure It's Frustrating and Expensive, but Travelers Just Have to Travel" tells us:

Despite the many flight cancellations in recent days, the slowing economy, rising gas prices and the weak dollar, Americans appear to be sticking to their summer vacation plans and business travelers are still being sent around the globe. The only change from last summer is the new emphasis on finding ways to cut costs.

"Leisure travel is kind of like food and rent -- it's considered an essential cost within a relevant range," said Bjorn Hanson, who follows the hospitality industry for PricewaterhouseCoopers.

By many measures, the number of people traveling set records in 2007, and those figures are holding steady so far this year. Travel agents and industry analysts report robust bookings for domestic, international and business travel. That is even true for trips to Europe, but some people are opting for destinations where the dollar goes further, like Portugal instead of Britain. And foreigners, flush with strong currencies, are traveling in record numbers to the United States.

As for business travel, Mr. Hanson says companies have cut back so much since 2000 that there is not much fat left to trim, but they are enforcing travel policies more strictly to control costs. And full flights may affect business travel in a different way: no room on the plane for executives who make last-minute plans.

"If you decide two days before a travel date and can't find a reservation, travel just doesn't happen," Mr. Hanson said.

...

Although the airlines are struggling with skyrocketing fuel prices, aging planes and calls for tighter regulation, one bright spot for the industry is that passengers are still filling up seats and booking flights.

""e're concerned about a recession, but probably more in the second half of the year," said John Heimlich, chief economist for the Air Transport Association, pointing out that airlines have not announced widespread fare sales.

The "weak" dollar also seems to be helping to boost the economy:

Nor have hotels been doing much discounting. Room rates in the United States were up 6 percent in 2007, to an average of $104 a night, and increased 5 percent in the first quarter of this year, according to Smith Travel Research.

Despite higher prices, especially in cities like New York, where the average rate is $270, the number of rooms sold increased 1.2 percent last year and is forecast to increase about 1.4 percent in 2008.

One factor bolstering this demand is the influx of foreign travelers. In 2007, some 57 million foreigners traveled to the United States, spending $123 billion -- a record on both counts, according to the Department of Commerce.

But Americans are continuing to travel to Europe despite the "weak" dollar and our so-called "recession":

What is surprising travel agents is that Americans are still going to Europe in record numbers, even though a cappuccino can cost up to $10 when they get there.

In 2007, 13.25 million Americans visited Europe, a 2.7 percent increase over 2006, and some industry analysts expect that number will at least remain flat, if not increase slightly, this year.

One of the problems with focusing so much attention on housing is that analysts are doing a pathetic job of trying to understand the rest of the real economy. I will not suggest that the U.S. economy is "strong" right now, but its weakness is greatly exaggerated.

-- Jack Krupansky

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