The New York Times has a front page report with the headline “Americans Cut Back Sharply on Spending“. The article notes that “strong evidence is emerging that consumer spending, a bulwark against recession over the last year even as energy prices surged and the housing market sputtered, has begun to slow sharply at every level of the American economy, from the working class to the wealthy. The abrupt pullback raises the possibility that the country may be experiencing a rare decline in personal consumption, not just a slower rate of growth. Such a decline would be the first since 1991”.
Presumably such an across the board tightening of the belt would strike at the lodging industry sooner than later. Publicly traded lodging stocks reflect that sentiment as the Dow Jones Hotel Index, a proxy for that group, has seen a steady downward trend for the last month. After reaching some heady heights last year when it crested 800 in July 2007, the index has tumbled down to 545 a steep drop of over 30% from its apex. Individual hotel scrips duly reflect that with Starwood (HOT) sliding down from its July 2007 high of over 70 to 39.45 on Friday. But does all that necessarily presage a recession? Much of the NYT reporting relies on anecdotal evidence that cites the performance of individual companies. While those results may be indicative they do usually do not stand up to statistical scrutiny. Most recession calls are made well after the downturn has passed and thus far the lodging industry has had a modest upturn in 2008 results per Smith Travel Research. Nevertheless, hotels are lagging indicators of the state of the economy and respond to overall economic changes a posteriori. But based on the available evidence, a steep correction in room rates similar to hotel stock prices is highly unlikely this year.