A Closer Look: US Economy

Will Leisure and Hospitality Make a Comeback?

By: Alan Beaulieu

What you need to know: Industry participants should put together their plans for increasing demand.

We get that question a lot, and I can save you some time. The answer is yes; leisure and hospitality are already coming back. There is a long hill to climb, but the journey has begun, and there is no reason to expect that it will stop. Here are the reasons why we are projecting ongoing recovery in this segment of the economy.

  1. Leisure and Hospitality Employment had the mildest fourth-quarter drop in 30 years. Yes, there was a decline, but that is to be expected in the fourth quarter of any year, and the decline amounted to less than one third the second-mildest decline on record. In addition, 3.849 million jobs have come back out of the 7.644 million lost from the February 2020 pre-COVID level, which means a little over half of the COVID job losses have already been recovered. More jobs recovery will occur in 2021 as this industry continues to recover.
  2. Air Travel plummeted to a low of $3.721 billion in April 2020 off a pre-COVID February 2020 level of $14.910 billion (monthly data trend). Air Travel has rebounded $2.331 billion (September 2020 data) since the low, leaving the industry far short of the February figure. However, the monthly and quarterly year-over-year rates-of-change are rising, demonstrating a positive cyclical trend is underway. In addition to the nascent dollar recovery, the number of air travelers has increased from the April 2020 low. There were 1.703 million air travelers from April 1 to April 16, 2020. The Feb. 1 to Feb. 16, 2021, count is 12.905 million, up 11.202 million passengers eight months later. The Feb. 1 to Feb. 16, 2020, count was 33.807 million air travelers, illustrating that the industry has a long way to go before it fully recovers, but the recovery has begun.
  3. Restaurants have become a focal point for the overall industry, as they are often in the news relative to the pandemic and the economy. We have all read reports about the closures of chains and poignant pieces on family-owned restaurants. According to CNN, approximately 110,000 restaurants closed in 2020, which is approximately 17.0% of all restaurants. Food Services and Drinking Places Retail Sales fell from a February 2020 pre-COVID level of $187.945 billion to a May 2020 low of $119.758 billion (quarterly data trend). The positive news is that Sales increased $33.317 billion from May 2020 to January 2021, making up almost half of the loss immediately following the COVID shutdown, and more rise is expected.
  4. Stimulus checks are no doubt aiding the upward movement in overall retail sales and in the food service trends. However, employment is also driving consumer spending, and the employment impact is more sustainable than stimulus checks. The chart below shows that the monthly year-over-year rate-of-change in the Employment Trends Index (the green line) is a solid leading indicator for Food Services and Drinking Places Retail Sales, and that a low in the Retail Sales annual rate-of-change is imminent. Plan on increasing Food Services and Drinking Places Retail Sales as we traverse the remainder of 2021.

Industry participants throughout the supply chain should put together their plans to meet an increasing level of demand in the leisure and hospitality industry, as well as in air travel, as 2021 unfolds. Implement the plans as you see your own quarterly year-over-year rate-of-change and quarterly data begin to move higher in concert with the leading indicators that work best for your company (visit itreconomics.com if you are unsure how to do this). Now is the time to plan for increasing demand, so your firm does not answer that demand with a paucity of resources.