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Signs point to a mild recession in the first half of 2023, but travel demand will continue to grow, according to Adam Sacks, president of Tourism Economics. This will be a first for our industry, which has declined during all previous economic downturns, he told participants of the New Jersey Conference on Tourism last week in Atlantic City.
Still, several factors are adding uncertainty in the market: Small business optimism remains low, and consumers are feeling uneasy. Inflation has eased somewhat, but prices are still high. However, job growth continues at a tempered pace, and the U.S. economy resumed growth in the third quarter. Sacks predicts a "very, very mild" recession — just a 1 percent drop, as occurred in 1991.
Four Reasons for Travel Optimism
Sacks shared the following reasons for remaining confident in the industry's outlook for the year ahead, which he believes will see travel continue to bounce back from its pandemic-driven downturn.
1. There Are No Signs of Weakness Yet
Travel is shrugging off the signs of recession. Hotels are charging 17 percent more than before the pandemic, said Sacks, and short-term rentals are expanding everywhere.
Meanwhile, the airline industry continues to make gains despite worker shortages. In fact, airlines expect to return to profitability next year, according to the International Air Transport Association's latest economic outlook report.
Auto travel, too, is doing fine, said Sacks. He noted that higher gas prices this year meant nothing, as the industry is up 6 percent over last year.
2. U.S. Households Are in a Position of Strength
Experts believe consumer inflation peaked over the summer with the consumer price index hitting 9.1 percent in June. The inflation barometer is on its way down, falling to 7.7 percent in October. Additionally, Americans are in a better place financially than they were in the early days of the pandemic, with an excess $1.7 trillion in savings to help cushion a mild recession.
3. Pent-Up Demand Isn't Going Away
Once travel opened up, people realized how much they missed it, Sacks noted. "They're saying, 'Oh I went without travel. And I didn’t like it. I’m not doing that again.'"
He expects travel to remain a top priority in the year ahead. The latest forecast from the U.S. Travel Association supports this theory, with business travel spending expected to rise 19.1 percent in 2023, while leisure travel is predicted to climb another 8.8 percent.
Other factors boosting travel include the new remote-work trend: 34 percent of people plan to travel as they work remotely, according to Longwoods International, which conducts the American Travel Sentiment Study.
4. Businesses Are Still Restoring Necessary Travel
Group recovery continues, with event intelligence provider Knowland reporting that meetings volume reached 90 percent of prepandemic levels in October. Meanwhile, corporate profit margins still are good and business travel expectations increased in the third quarter.
Still, according to the New York Times, some corporations have started cutting back on travel spending. Industry analyst Henry Harteveldt told the newspaper that corporate travel managers have started to ban nonessential business travel and to increase the number of executives needed to approve employee trips.