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Dec 12, 2008

Hotel industry risk of recession at 99.9%

This morning economic research firm in conjunction with Smith Travel Research announced that following a decline of 1.9 percent in October, HIP fell by 3.2 percent in November. HIP, the Hotel Industry's Pulse Index, is a composite indicator that gauges business activity in the U.S. hotel industry in real-time. This decline brought the index to a reading of 92.4. The index was set to equal 100 in 2000.

Looking at HIP's six-month growth rate, which historically has signaled turning points in U.S. hotel business activity, HIP went down by an annual rate of 13.5 percent in November, further worsening its decline of 9.2 percent in October. This compares to a long-term annual growth rate of 3.2 percent, the same as the 38-year average annual growth rate of the industry's gross domestic product.

Looking at the results, Chief Economist Evangelos Simos of said, “Using the NBER methodology to identify the peaks and troughs of the business cycle, the peak was in November of 2007 for the industry. Since then, the index has been declining and so far the recession is 13 months old. Looking further at the six month growth rate, at this time, the recession appears to be similar to what the industry felt in late 1979 through early 1980, but not yet quite as bad as 2001.”

The probability of a recession in the hotel industry, which is detected in real-time from HIP with the help of sophisticated statistical techniques, registered 99.9 percent in November, up from 95.7 percent reported in October. Historically, when this recession-warning gauge passes the threshold probability of 35 percent for a few months, the U.S. hotel industry has entered a recession. As a result, the odds of business expansion in the hotel industry were at the 0.1 percent mark in November, becoming even more dismal than October’s reading of 4.3 percent.

The Hotel Industry Pulse, or HIP for short, was created to fill the void of a real-time monthly indicator for the hotel industry that captures current conditions. What the indicator does is provide useful information about the timing and degree of the industry’s linking with the US business cycle, or simply put it tracks monthly overall business conditions in the industry, like an industry GDP, and points in a timely way the changes in direction from growth to recession or vice versa. The composite indicator is made with the following components: revenues from consumer’s 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.

Source : HotelNewsNow
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