The Wall Street Journal – A recession might be coming for America, but America is going on vacation first.
With the Memorial Day weekend upon us, the summer vacation season has begun. Despite worries over persistent inflation, banking-sector woes and the debt-ceiling standoff, people are probably going to be spending a lot of time, and money, on trips. This should provide some support for the economy in the months ahead. The gains will likely be uneven, though, with some types of travel more in favor than others.
Americans have the means: A big chunk of the savings households up and down the income ladder built up when the pandemic started is still there and, with the unemployment rate at a 50-plus year low of 3.4%, paychecks are steady. They will also surely notice that the price of gasoline has fallen a lot since last Memorial Day, with a gallon of regular lately averaging $3.57 a gallon according to AAA compared with $4.60 a year ago.
More people probably also have the desire to travel again. Even though summer travel last year was much busier than in 2021, it was still broadly below prepandemic levels. Passenger car travel on U.S. interstates last year was lower than during the comparable 2019 period, as were the number of miles people traveled on domestic flights and hotel-occupancy levels. Travel by Americans abroad was also well below prepandemic levels, and overseas visitors to the U.S. were lower as well.
Since then, worries about Covid have largely evaporated. In a Gallup poll last May, 40% of respondents said they had been avoiding travel by airplane, bus, subway or train. By this February—the most recent survey—that figure had fallen to 18%. With the U.S. this month ending the national emergency and public-health emergency declaration put in place when the pandemic hit, people are probably even less worried now.
Alongside people’s re-engagement with other activities they cut back on during the pandemic, such as attending concerts and packing into restaurants, increased tourism could help fend off the recession many economists believe is coming.
But the types of tourism people engage in this summer will be different. For the past two summers, remote-work arrangements afforded many people the option of working from vacation homes when school was out. It might not have exactly been a vacation, except for the kids, but it did boost demand for vacation rentals. Now, with more businesses expecting their employees to come in to work at least part of the week, combining work and play in that way won’t be as easy. Plus, a lot of people are probably hankering to go on a more traditional vacation. When it reported results earlier this month, Airbnb said it expected second-quarter bookings to slow as it lapped strong demand last year. Its shares fell sharply.
Traditional hotel chains have been more upbeat, with many, including Marriott International and Hilton Worldwide Holdings, upping sales forecasts for this year when they reported first-quarter results. The unlocking of overseas demand, particularly in countries such as China and Japan that had strict Covid mitigation measures in place last summer, is helping boost global demand for hotel rooms. That reflects increased comfort with international travel and is having a spillover effect for the U.S. as a destination: Over the three months starting last June, international arrivals to the U.S. were 33% lower than in the comparable three months of 2019, according to the National Travel and Tourism Office. The most recent available data shows that in the first two months of this year that gap had narrowed to 18%.
The return of international travel will change the contours of U.S. tourism demand this summer. Generally speaking, overseas visitors aren’t interested in coming to the U.S. to remote work from a cabin in the woods while their children run around. Rather, they want to see the sights, and for many of them those sights are more urban than rural. The same probably applies to many Americans this year, so cities could experience stronger tourism growth than many other areas.
Reduced Covid worries are also benefiting the cruise industry: Results from Norwegian Cruise Line Holdings and Royal Caribbean Group earlier this month led to pops in both companies’ shares. Ships have gone from not having enough passengers a year ago to packing them to the gunwales, and in some cases cruise lines are canceling people’s trip after overselling.
Cruise lines’ late bounceback is due in part to the industry’s high-profile Covid problems early in the pandemic. The fact that many cruise passengers are older, and older people have been more wary than younger people of the risks of infection, probably also played a role.
Older travelers may be making up for lost time. An analysis of Bank of America credit and bank card data conducted by the Bank of America Institute found that, while spending on airlines and lodging by younger people in April was stronger relative to before the pandemic than for older generations, it was weaker relative to a year earlier. If older travelers are now bouncing back, that could be a plus for overall tourism spending since they are often more willing to part with their money in exchange for comfort—taking direct flights instead of multileg journeys, for example—than they were in their youth.
Young or old, the combination of people’s desire to travel, and their ability to do so, should make for a busy summer. The road is calling.