Ralf Garrison: The perfect economic storm
National economic storm clouds have been gathering these past months. The related headwinds have been apparent nationally for some time but are now showing up in our mountain travel industry as well. The Mountain Travel Monitor is designed to help track the situation (see related charts) while this narrative provides a synopsis.
Nationally, Consumer Confidence, a national indicator of consumer’s economic confidence, plunged (-13.4%). The Consumer Price Index of what consumers pay, increased (+1%) and the Travel Price Index of what consumers pay for travel, rose (+1.5%), faster than overall prices. These indicators are all negative.
A Perfect Storm, (made popular by a book/movie of the same name) occurs when weather patterns from several storms converge, feeding off of each other and compounding the resulting impact. This same metaphor may apply all-to-well, to the convergence of several economic storms and help explain the underlying drivers:
Finance: What first appeared as a sub-prime loan problem, developed into a housing-led recession and is now moving into commercial markets, construction and real estate industries. Of more fundamental concern is the impact on our financial markets and banking system. Even the federally chartered institutions (Freddie Mac and Fannie May), created during the great depression of the 1930s are now, themselves in line for federal bailout.
Fuel: Rising Crude oil prices broke historical highs at $70/barrel shortly after the start of the sub-credit crunch and have now doubled to more than $140 and related gas prices are moving toward $5/gallon with no immediate signs of falling back. The result is crippling the airline industry and changing the way we use and purchase automobiles. This further affects the economy in general, and has a direct impact on travel and a much broader affect on everything that needs to move from point A to point B ” driving prices up across the board and taking money out of our pockets in the process.
Inflation: A unique chain of events started with 9/11, then included two wars, Katrina, and now the mortgage bailouts, resulting in frequent federal intervention and pumping money into the marketplace in hopes of subsidizing a recovery. The result is a drastic spike in inflation, now at a 29-year high, and is devaluing the U.S. dollar to what some are now calling the “American peso” and making everything, including oil/gas, even more expensive.
So a viscous cycle has been created; higher prices mean things costs more, our money is worth less, and the credit markets are no longer available to lend us more money. Together, this earns the “Perfect Storm” metaphor.
So are we pessimistic, despondent even? Not so much. Certainly some tough times are ahead especially in the short term, but from an economic cycle point of view, it was overdue and is a pre-cursor to the solid market on the other side of the storm. It has been long-since established as a fundamental tenant of economics, that markets are cyclical in nature and as such are self-correcting. The credit crunch was preceded buy a credit glut. The housing recession came after an unsustainable boom in housing in which many of us participated.
Fuels costs have been lower in the U.S. than most anywhere else since the 70s. The Dot com bubble burst only after a monumental run. We’ve enjoyed the upticks and are now experience the other side of the inevitable cycle. These “corrections” are less disruptive when they come in smaller, shorter cycles, rather than larger, longer and more drastic cycles, so, in a strange way, we are better off in the long run if we just get it over with.
In fact there may be some good news, at least for those of you who think we are living in an unsustainable manner. People don’t change their behavior in any substantial way unless there is a huge opportunity or great crisis. Economist Paul Romer once said, “a crisis is a terrible thing to waste,” and this Perfect Storm may represent just such a crisis, compelling us into doing the very things that may help insure our longer term well being. For many Americans, these would be revolutionary changes that will also reduce our dependency on carbon fuels, shift our reliance away from foreign oil and reduce greenhouse gasses enough to at least forestall global warming.
So, maybe there is a sliver lining. Maybe this “Perfect Storm” will even turn out to prompt good things in the long run.
Ralf Garrison is the director of MTRIP LLC.
– Occupancy in June was down (-11%) but somewhat offset by a (+5%) rate increase.
– Rooms Booked during June 2008 for all future arrival dates dropped substantially (-13.6%) from June 2007 but less than last month, where rooms booked in May were off (-21.1%).
– Total advanced reservations for the next six months are trending behind (-5%) last year’s pace and, again, rates are up (+4.8%).
* Based on MTRIP’s sample of 216 Property Management Companies in 15 Mountain Destination Communities in the western U.S. and Canada. Data may not reflect the entire Mountain Destination Travel Industry. For further information contact MTRIP LLC directly at firstname.lastname@example.org or phone at (303) 722-7346. All rights reserved.
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