Many economists are predicting a recession later in the year, but one of the industries hurt most in the pandemic is bouncing back to pre-Covid levels.
Leisure and hospitality businesses are hiring, offering enhanced benefits and trying to meet persistently robust demand. This expected strength in leisure spending means big business for an industry that was on its knees just three years ago.
When the pandemic began, restaurants, bars and hotels were hard hit, shedding more than 8 million jobs in the first few months of 2020. That equaled about a 49% contraction of that sector’s workforce.
But it started to recover in May of that year and, last month, stood just 2.4% shy of its February 2020 level. The industry added 917,000 jobs in April from a year earlier, according to data from the Bureau of Labor Statistics, the second-largest gain of any industry during that period.
Summer travel record?
Leisure and hospitality is expected to fully recoup all its Covid-related job losses this year as American consumers continue to travel, dine out and spend on in-person experiences, especially during the summer.
That could position the industry to weather a recession in a way it hasn’t before.
The upcoming summer months might “set a record or be close to it” in terms of room occupancy, according to Chip Rogers, president and chief executive of the American Hotel & Lodging Association.
A recent survey from Bank of America showed that 68% of Americans plan to take a vacation this year.
Nearly three million Americans took a vacation from work in March, the highest number for that month on records going back to 1976, according to the government’s Current Population Survey. Vacationing remained elevated in April with 2.7 million Americans not at work because they were on vacation, the highest level for that month since 2017.
In the first three months of the year, the eight largest US airlines, which between them control 95% of the nation’s air traffic, were essentially back to the level of traffic they had in the first quarter of 2019, and 23% ahead of the traffic they reported in the first quarter of 2022, when the Omicron variant of Covid-19 curbed demand.
The four largest US airlines — American, United, Delta and Southwest, which between them control 80% of the market — all reported either record cash flows or first quarter revenues, some of it due to higher fares. They’re all projecting very strong bookings for the second quarter.
Restaurants are also cashing in on this momentum. A recent study from OpenTable, a restaurant technology company, found that 66% of diners surveyed eat out at least once a week, and that 33% said they were eating out more than they did six months ago.
Why wait until retirement?
Tourism hubs such as Miami, New York and Honolulu will benefit greatly in the coming months from the cash that’s burning a hole in some Americans’ pockets, said Tori Emerson Barnes, executive vice president of public affairs and policy at the US Travel Association.
Higher wages have helped fuel spending, in addition to the savings they beefed up during the pandemic — though that has been dwindling in recent months.
But why are Americans still so willing to open up their pocket books to take a trip or go out to eat, despite inflation and economic uncertainty?
“It’s become less ‘revenge travel’ and more of a lifestyle in terms of sort of a generational shift in the prioritization of in-person experiences over goods,” Jeanelle Johnson, partner and co-leader of the travel, transportation and hospitality sector at PricewaterhouseCoopers, told CNN.
“The pandemic did result in a permanent shift in preferences, particularly for younger generations. People used to create a bucket list of what they’d want to handle during retirement, but now they’re saying ‘why wait until retirement.’”
Another reason why Americans are fixated on leisure spending might be related to unaffordable housing, said Johnson. Many potential homebuyers likely gave up on saving up to buy a home — an old generational dream that is currently out of reach for many, amid mortgage rates above 6%.
A new mindset
“People just feel priced out of the housing market and as a result, they’re shifting to spending more on things that bring you joy in the moment,” said Johnson.
This resilient demand for in-person experiences means that hospitality businesses have to scramble to satisfy that demand. One problem is that it’s been an enduring challenge trying to hire enough employees.
A report earlier this year from the National Restaurant Association showed that 79% of restaurants surveyed reported difficulty in hiring. Rogers said “it’s still very difficult” for hotel owners to staff up. Many have begun to pay their employees daily and have adopted more flexibility in terms of scheduling.
“If you want to work just two days a week or you want to work from 4-8 p.m., a hotel most likely will hire you. That flexibility has changed dramatically,” Rogers said.
The industry still remains one of low wages, though some employers have promoted workers more frequently to help with employee retention. it remains quicker and easier to get a raise by switching jobs, economists said.
Wages and salaries paid to workers in leisure and hospitality rose more than 20% in the first quarter from February 2020, according to the Employment Cost Index.
How a recession factors in
There is still a recession on the horizon, according to many economists, including those at the Federal Reserve.
Consumer spending represents about two-thirds of America’s economic engine, so when consumers pull back, the impact can be dramatic. Leisure spending is usually first on the chopping block because of its discretionary nature. However, the traditional recessionary dynamic might be a little different this time, potentially sparing the industry outright or resulting in only a minor slump.
A recession could also re-balance the economy in favor of leisure and hospitality instead of goods purchases.
“Given that leisure and hospitality has lagged behind, given that they may want to hold on to workers because they’re still short staffed, the industry may fare relatively better from an employment perspective during an upcoming recession,” said Stephen Juneau, an economist at Bank of America.
— CNN’s Chris Isidore contributed to this report.