by Calculated Risk on 2/16/2009 04:40:00 PM

From Smith Travel Research (STR): Hotel industry recession reaches 15 months

The Hotel Industry’s Pulse index declined 1.9-percent in January to bring the index to a reading of 90.8, according to a report from economic research firm e-forecasting.com in conjunction with Smith Travel Research.

The index measures the likelihood of a recession for the U.S. hotel industry. It was set to equal 100 in 2000. January’s 1.9-percent decline followed a drop of 1.2 percent in December.

HIP’s six-month growth rate, which historically has signaled turning points in U.S. hotel business activity, decreased by an annual rate of 16.1 percent in January, building on December’s 14.5 percent decline.
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“According to HIP, the hotel industry entered its 15th month in the current recession in January,” said Chad Church from Smith Travel Research.

The previous two industry recessions, in 1991 and 2001, lasted 17 months each. “If HIP continues to decline for a few more months, the current recession in the hotel industry may outpace the longest hotel recession on record that occurred in 1981 and lasted 20 months,” Simos added.

Click on graph for larger image in new window.

This graph from e-forecasting.com and Smith Travel Research shows the hotel recessions based on the Hotel Industry’s Pulse index and the NBER's business cycle dating methodology.

In general, hotel recessions correspond to general economic recessions, although they last longer. There was a double dip recession for hotels following the 2001 recession.

The second graph shows investment in lodging (based on data from the BEA) as a percent of GDP. In general investment in lodging starts to decline during a hotel recession, however the recent boom in lodging investment has been stunning. Lodging investment is now at 0.34% of GDP - an all time high. However, with the hotel industry in recession, it appears likely that investment in lodging will decline sharply in 2009.

Note: prior to 1997, the BEA included Lodging in a category with a few other buildings. This earlier data was normalized using 1997 data, and is an approximation.