During the 1961 World Series between the New York Yankees and the Cincinnati Reds, future Hall of Famer Yogi Berra dropped a fly ball in the outfield when the late afternoon sun momentarily blinded him. When asked by a reporter after the game what happened, Berra remarked: “It gets late early out there.”
The same can be said of the U.S. economy. It’s getting late early for any hope of recovery in 2009. Nonfarm payroll employment fell 345,000 in May, according to preliminary data released by the Department of Labor, a dismal figure to be sure but a substantial improvement compared with the job losses of 504,000 in April and 652,000 jobs in March.
Since December 2007, the economy has lost approximately 6 million jobs and the unemployment rate has climbed to 9.4%, the highest in more than a quarter century. If the unemployment rate were to include those persons who have stopped looking for work or are in part-time positions, the number would be 16.4%.
While commercial real estate professionals can take some solace in the fact that the overall rate of decline in the employment market is slowing, there is no way to sugarcoat the damaging effect these huge job losses are having on household wealth and consumer demand for apartments, retail and hotels.
“All that is really happening in the economy right now is that it ‘appears’ that we are reaching bottom. That doesn’t mean we’re going anywhere. It just means that we’re not going to go any further down,” says Dr. Lalia Rach, divisional dean and HVS chair for the Tisch Center for Hospitality, Tourism and Sports Management at New York University.
This will not be a V-shaped recession and recovery, emphasizes Rach. “I’m very optimistic that we will rebound and that eventually we will be enormously strong, but it’s not tomorrow, it’s down the road.” The insights by Rach come on the heels of NYU’s 31st International Hospitality Industry Investment Conference held June 1-3 at the Waldorf-Astoria in New York. The event drew about 1,650 industry pros, a 20% decline from last year’s record attendance.
While the May employment report reflects an economy still in retrenchment mode, the leisure and hospitality industry added 3,000 jobs, a marginal increase. The industry had lost an average of 39,000 jobs per month during the prior six months, according to the Labor Department.
Big bounce theory in question
In some of the workshops that she attended at the NYU hotel conference, Rach was surprised to hear talk of pent-up consumer demand that could potentially lead to a big bounce in business for hoteliers. “But it [pent-up demand] is not there. I don’t know where this is coming from” says Rach.
“I ask you, are you looking to the day when you can spend a lot again, even though you haven’t been able to if you’ve had to cut back? Do you have this idea in your head that it’s in six months, a year, or 18 months? I don’t sense that in people and any of the research that I’m reading,” emphasizes Rach.
If anything, consumers are feeling squeezed. Wages are being frozen or cut, credit is getting more difficult to obtain, and consumers’ net worth has taken a big hit due to falling home prices and a reduction in the value of their 401(k) plans.
Meanwhile, business travel has been decimated by waves of corporate layoffs. Revenue per available room (RevPAR) is down 18.2% for the first four months of 2009 compared with the same period a year ago, according to Smith Travel Research. But Smith Travel is anticipating a stronger second half of the year for hotels. The firm based in Hendersonville, Tenn., forecasts that RevPAR will rally to finish the year down 9.8%. Rach thinks that prediction is a bit too rosy.
“That would mean business travel has to come roaring back. It means that meetings would have to come roaring back, and they’re not going to because businesses are retrenching on how much they will spend on travel,” says Rach. “They’re looking for that middle ground. How much of that outreach can be virtual, how much of that needs to be in person?”
Don’t be surprised when the employment figures for June are released that another famous Yogi Berra quotation comes to mind: “It’s like déjà vu all over again.”