Numbers and More Numbers: What Do They Mean?
By Don Holecek, Editor-in-Chief of Michigan Tourism Business
During the past few weeks, I’ve been exposed to a steady stream of new statistics concerning the economy and the travel industry. The flood of numbers began three weeks ago when I attended the Travel Industry Association of America’s (TIA) annual Travel Outlook Conference. Then, I accumulated more data while developing my presentation for the third annual “Tourism Means Business” conference in Oakland County, Michigan. Last week, I attended the “52nd Annual Conference on the Economic Outlook” at the University of Michigan where numbers related to the U.S. and Michigan economies flowed freely. Along the way, I received some interesting numbers via an email article written by Peter Francese for American Demographics magazine subscribers.
In this column, I will share some of the more interesting numbers that have come my way recently and will attempt to piece them together to see what they might mean for Michigan’s tourism industry. Hopefully, when combined with your own numbers and experiences, you will find additional meanings in and applications for these numbers.
U.S. Trend Data
Let me begin by focusing on some national numbers gathered at the TIA conference. The year 2000 was a record year for the U.S. travel industry. Slightly over a billion person-trips were taken that year by leisure and business travelers who spent $581 billion on their trips. Between 2000 and 2003, business travel declined each year, bottoming out in 2003 at 15 percent below its peak in 2000. However, leisure travel increased slowly but steadily during this period and registered an increase of about seven percent by the end of 2003. Total travel spending bottomed out in 2002 but had not fully recovered to its 2000 peak by the end of 2003. Keep in mind that TIA doesn’t project estimates of industry profits, which surely have been weaker than reported travel volume and expenditures. With supply exceeding demand between 2000 and 2003, and consumers having increased access to travel price searches via the Internet, the industry has had limited ability to boost prices to offset general inflation and rising healthcare and fuel costs.
TIA forecasts healthy overall growth for the industry in 2005 and 2006. Even so, business travel will remain below its peak in 2000, and nominal growth in expenditures by the end of 2006 is unlikely to be sufficient to return industry-wide profits to the level achieved in 2000. Assuming that TIA’s projections for the industry through 2006 prove to be accurate, one can draw the following conclusions:
– 2000-2006 will be an exceptionally long and deep period of decline for the U.S. travel industry.
– Leisure travel has proven to be remarkably resilient during these challenging times.
– Changing dynamics (e.g., price sensitivity and technological alternatives to travel) underlying business travel appear to have had a major and long lasting impact on business travel demand.
– With limited pricing power, the industry will need to turn from relying on opaque and complex pricing strategies for generating profits, to increasing sales volumes, to cost-cutting, and to product innovation marketing strategies for its future profits.
The year 2000 was also a very good year for Michigan’s tourism industry. The best indicators that I’ve found for tracking our industry’s performance over time are highway traffic counts at selected locations outside of metro areas (my trip volume indicator), and hotel and motel sales and use tax collections (my expenditure indicator).
Michigan Trend Data
My Trip Volume Indicator
As in the case nationally for leisure travel as data reported by TIA, statewide Michigan traffic volume increased slowly but steadily between 2000 and September of this year. Traffic counts have been down from the same month in the previous year in only 12 instances (up in 33 instances), averaging about a two percent average annual increase over this period vs. about a 3.5 percent average increase over the prior 15-year period. Hence, the rate of volume growth has slowed since 2000 but has remained positive. Regional differences in traffic volume are evident in the data, with the most striking being in the Mackinac Bridge crossings data. Bridge crossing counts declined from the same month in the previous year in 27 instances (up in only 18 instances). And, crossing count declines have accelerated over the last couple of years—declining in eleven months in 2003 and in seven of nine months in 2004, through September.
My Expenditure Indicator
Tourism expenditures have slumped, based upon the trend in sales and use tax collection data that I use as an indicator. Collections declined three percent from the prior year in 2001, another eight percent in 2002, and turned up only slightly (one percent) in 2003. The decline from the 2000 peak was ten percent by the end of 2003. Tax collections data through July 2004 indicate that this ten percent sales decline will hold through the end of the year.
One might draw the following conclusions about the Michigan tourism industry’s performance since 2000:
– Tourism volume in Michigan closely tracks the national trend-growth but at a slower rate.
– Tourism expenditures generally tracked the national decline on the way down but have remained down (by approximately ten percent) while nationally they are projected to return to the 2000 peak by year-end.
– While statewide tourism volume has been growing at a somewhat slower rate than in the past, a notable change has occurred in distribution of trip volume across regions in the state.
In the short run, it is likely that consumers are reducing the distance they are willing to travel, reflecting their fiscal circumstances; in the long run, the observed changes may be attributable to long-term demographic changes, especially our aging population.
Demographic Trends
Peter Francese’s article titled, “Whose Income Keeps Rising Even in Bad Economic Times?” offers insights which help to explain recent trends in travel in the U.S. and in Michigan. He notes, “from 2000 to 2003 median household income dropped to $43,320 [in the U.S.], a decline of 3.4 percent [in constant inflation-adjusted dollars].” The decline in Michigan and the adjacent states from which we attract the majority of our tourists is most likely greater than the national average given their higher rates of unemployment and exceptionally large losses of high-paying manufacturing jobs. A probable decline of four-to-five percent in real average disposable income across households in Michigan’s prime tourism market is surely a major cause of our industry’s decline between 2000 and 2003.
Francese makes a couple of additional points which offer additional insights for our industry. For example, he notes that changes in median income were uneven across age cohorts. Empty nester households headed by 55-64 year olds actually saw their median incomes increase by almost three percent. Households with children under 18 didn’t fare as well and saw their median incomes decline by over one percent. Households headed by people under 35 experienced a whopping nine percent decline in median income. He also notes that those working full-time generally saw their median incomes increase while part-time employees generally experienced income declines. These data lead to several possible conclusions:
– Tourism “product” targeting young families has experienced soft demand and exceptional price sensitivity.
– Tourism “product” targeting empty nesters has benefited from that cohort’s median income growth, plus market size growth due to our aging population.
– The relatively high level of unemployment in our prime market, coupled with large shifts in full-time to part-time employment, may account for the limited recovery in tourists’ expenditures in comparison to the overall U.S. travel industry.
Economic Trends
It would be great to be able to report that the forecasts for the national and state economies presented at the University of Michigan’s Economic Outlook Conference provide hope for a full recovery of Michigan’s tourism industry in the near future. But, the economic forecasts are not entirely encouraging for our industry. The national economy is expected to continue to grow at a moderate pace over the next three years (Gross Domestic Product growth in a 3.4% - 3.8% range) with the unemployment rate declining from 5.5% in 2004 to 5.1% by the end of 2006.
The forecast for Michigan is far less rosy. Between 2000 and 2004, Michigan will have lost 308,400 jobs. By the end of 2006, job loss from 2000 will be reduced to 176,300, and our rate of unemployment will remain at 6.1%. On the positive side, only a modest rate of inflation (approximately two percent) is expected, and real disposable income growth is projected to be at the 3.7% level by 2006, the highest growth rate since the late 90s. The picture for state government revenue is particularly bleak. Nominal general fund/general purpose (GFGP) state revenue is projected to decline next year before increasing slightly in 2006. In 2006, nominal GFGP revenue will about equal its 1995 level. Of course, a 2006 dollar will purchase a whole lot less than could have been purchased with a 1995 dollar. Since 2000, a pointed disconnect has developed between state tax revenue collections and personal income growth. By 2006, personal income is projected to have grown by 56.2% since 1995, while tax collections will have increased by only 2.3%.
Finally, I found the employment numbers provided at the University of Michigan conference of particular interest. Here are a few highlights:
– The services sector accounts for 39 percent of Michigan jobs and will account for 60 percent of job growth between 2004 and 2006.
– About 25,000 jobs in manufacturing were lost every six months over the last four years.
– Employment in transportation equipment manufacturing (i.e., the auto industry) will be down to 252,000 by the end of 2006).
– Employment in the leisure and hospitality sector will be up to 431,000 by the end of 2006.
– Between 2003 and 2006, the leisure and hospitality sector ranks #1 or #2 in rate of new job creation among the eleven specific private sector employment categories.
I would be interested in hearing your thoughts about these issues. Feel free to write to me at dholecek@msu.edu.
