A weaker-than-expected job market in the United States is causing jitters in the travel sector, where fears that cautious consumers will cut back on vacations are causing Wall Street to shed travel stocks. But is it just a market correction?
Slowing demand?
The US unemployment rate rose by 0.2% and only 114,000 jobs were created in July 2024, instead of the anticipated 175,000. This has coincided with a drop in visits to US Disney parks last quarter and a fall in cruise and theme park profits, according to the entertainment giant’s CEO and CFO. There has also been what some are calling a “softness” in leisure travel results for firms like Priceline, Expedia and Marriott.
In addition, Airbnb’s CEO Brian Chesky told an earnings audience last week that the company is seeing “some signs of slowing demand from US guests.” Hilton’s Chris Nassetta meanwhile has noted consumers have “less disposable income and capacity to do anything, including travel.”
The US unemployment rate ticked up 0.2 points to 4.3% in July. The number of unemployed rose by 352,000. The latter largely reflected people completing temporary jobs. pic.twitter.com/rPiFOVs6kp
— Dr Thomas Kevin Swift (@DrTKSwift) August 2, 2024
Post-Covid market normalization
For David Tinsley, a senior economist at Bank of America Institute, signs of drops in spending could be a “natural” effect of falling inflation causing travel revenue growth to “come back down”.
And CNN Business is suggesting similarly that the “softening” could merely be a series of corrections to a market place that was previously skewed post-pandemic factors, noting that consumers had accumulated unusual levels of savings while travel restrictions were in place giving them room for a spending spree. What we are seeing could simply be that spree is now waning, something echoed by S&P Global.
Demand still there, just more thoughtful
Though “travel ticked down in June compared to May” according to a Bank of America Institute credit card report, still more American consumers are planning a holiday over the next six months than this time last year.
And another sign of travel’s robustness in the face of some headwinds, are hotel occupancy rates in the US, which CoStar Group says were up year on year for the week ending 10 August.
Some signs of stress do exist at the budget end of the accommodation scale, according to CoStar’s Jan Freitag and Morningstar equity analyst Dan Wasiolek, who notes that “Lower-price hotel operators, like Wyndham and Choice, are seeing the weakest growth”.
But luxury and high-end bookings are up. And, looking back at Airbnb’s Chesky’s remarks, he notes consumers appear to be booking trips at shorter notice, rather than not booking them at all.
These all appear to be signs that consumers are “reaching a point now where they are making some very conscious decisions about how they want to spend their money,” said Priceline’s Brett Keller, speaker to Fox Business. “I wouldn’t call it a slowdown.”
