- October 4, 2021
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Sep. 30—After the pandemic-driven economic crash, followed by a rapid recovery, U.S. gross domestic product growth will be "a little softer" in the second half of 2021, according to Roger Tutterow, an economist with Kennesaw State University.
Tutterow's talk was one of three presentations at Cobb Travel & Tourism's annual hospitality industry forecast, where experts and insiders talked pandemic economics. The event provided a look at the future of leisure and hospitality in Cobb, including two lectures from economists and a panel of experts sandwiched in between.
Across a variety of metrics, the message from the speakers followed similar themes. Leisure and hospitality took massive hits in employment and revenue at the start of the pandemic. The industries recovered quickly after the first few months of lockdown, but by some indicators, recovery has slowed and not yet returned to pre-pandemic levels.
Panelists discussed supply chain issues, labor shortages, travel and spending trends and more.
Georgia's economy, Tutterow said, has made up more than 80% of pandemic job losses, the fourth-best in the nation. He expects employment to recover fully in the second half of 2022. But the availability of workers might not fully rebound until 2023, he said.
Some optimistic economic projections made earlier this year were later tempered due to low vaccination rates and the delta variant surge, economists said.
"We had initially predicted at the beginning of the year, the vaccines were getting rolled out," said Bram Gallagher, an economist at CBRE Hotels' Americas Research. "We were very, very optimistic. … We moved through the year, didn't quite turn out that way … And what this has done, especially since it has come again, at budget season, is it has pushed the (return of) business, group and convention travel another year."
Hawaii and Nevada were the two states hit hardest at the start of lockdown, Tutterow said, because of their reliance on tourism. In Georgia, metro Atlanta was hit by the lack of conventions, but tourism losses also hit the coastal areas and pockets of the north Georgia mountains.
Paycheck Protection Program loans saved lots of businesses during lockdown, Tutterow said, but property owners and lenders will be coming to collect their money soon.
"Until the tide goes out, we don't know who's swimming naked," Tutterow said, quoting Warren Buffett. "And my friends, the tide is about to go out."
One of the biggest question marks in projecting future economic activity is whether a vaccine-resistant variant will emerge and set back the economy again, Tutterow said. And that uncertainty makes it harder for businesses to secure loans.
The leading indicators, though, say the economy will expand this year and well into next year, Tutterow said.
"Growth will moderate," Tutterow said. "The low hanging fruit of the reopening has kind of been picked. But there's no reason to believe that we won't see the economy continuing to grow in 2022."
Supply-chain and labor woes
Supply-chain issues, labor scarcity and the relationship between the two were discussed throughout the event's talks.
Bill Goudey, CEO of restaraunt chain Copeland's of New Orleans, said that meat and seafood prices are through the roof.
"Because the processors don't have the labor to process the product," Goudey said.
Crab meat, for example, has doubled or tripled in cost, he said. Expect turkey shortages come holiday season, Goudey added.
Restaurateurs are just trying to get by, Goudey said, and he anticipates these issues will continue well into next year. The shocks caused by COVID-19 are still here, evidenced by the fact that at some restaurants, 20-30% of orders are to-go, he said.
Goudey mentioned government assistance, the fear of COVID-19 and childcare duties as causes of labor scarcity.
"You've got two hourly wage workers with children at home," Goudey said. "During COVID, one of those people had to quit their job to take care of their kids, because they couldn't afford childcare, and school wasn't in session."
Labor issues hurt restaurants in particular, Goudey added, because 60% of Georgia's 500,000 restaurant workers were furloughed or laid off at the start of COVID-19. Many of those that wanted to work were poached by logistics giants — Amazon, UPS and FedEx. Now, restaurants are upping their wages and benefits to compete for employees.
Gallagher said hotels, too, had experienced "enormous labor dislocation."
"And reassembling this labor force to allow hotels to accommodate all the demand is going to be one of the challenges," Gallagher said.
Gallagher, analyzing labor issues, also cited competition from other sectors, childcare and eldercare duties, as well as increasing retirement in some cohorts.
There is also the politically charged topic of stimulus payments and unemployment benefits.
"I'm an economist, I build models of rational behavior," Tutterow said during his talk. "So you can't tell me that you're gonna put programs in place and say, 'We'll pay you more to stay home,' and then get mad when people take you up on it."
Supply issues are tied to inventory, the buffer against shortages and surging prices, Tutterow said. At the start of the pandemic, inventory shot up, but the tight labor market means there hasn't been a normal inventory rebalancing.
Plus, when news stories get out about supply shocks, people panic buy, worsening the issue. See the toilet paper aisle at the grocery store in March 2020, or the Colonial Pipeline cyberattack and associated gas shortage for evidence.
"I went on Atlanta television," Tutterow said of the gas shortage. "I said 'Look folks, there's 10, 12, 15 days worth of inventory in the system. There's no reason to panic, there's no reason to get upset.'"
"And then I turned off the camera and ran to the (Quicktrip) to pump," Tutterow added, prompting plenty of laughter.
Supply chain shortages, Tutterow believes, are here to stay for "a couple more quarters." In other words, another six months or so.
But it's the labor force participation rate that "should be keeping you awake at night," Tutterow said.
Before the Great Recession, 66% of Americans were in the labor force. That dropped to 62.5% after the economy crashed in 2008, then slowly grew to 63.5%. COVID-19 made it drop even further, to 60.2%. It has since grown to 61.7% The consequence of this decline, Tutterow said, is a record 11 million unfilled jobs nationwide.
The current labor squeeze will lessen as government benefits expire, economists said. Goudey said he'd support some sort of government-funded childcare program to enable people to rejoin the work force.
Hardman said that nearly 70% of all job openings are in leisure, accommodations and hospitality. The hospitality industry, then, needs to market itself better to prevent loss of workers to other sectors. Emphasizing opportunities for promotion, employee perks (hotel discounts, travel opportunities) and employee benefits are part of that strategy, he said.
The outlook for hotels
Gallagher, in his lecture, outlined the drop and recovery of hotel revenue since the start of the pandemic.
In 2019, the revenue that hotels made per room was at $92.85 before plunging during the pandemic. It has now grown to $69.33, Gallagher said. Gallagher projects revenue per room will recover to pre-pandemic levels by 2024.
Hotel occupancy rates have been slower to recover than overall revenue, Gallagher said. The industry has been compensating by charging higher room rates.
Metrics displayed by Gallagher show air travel has recovered some but leveled off at about 20% less than the pre-pandemic norm. Gallagher said the upshot is that Cobb's hospitality industry is less dependent on air travel because of the high presence of "drive-to" opportunities.
Data indicates many households are saving money and paying down debt. This bodes well for the future of travel, Gallagher said — once consumer confidence returns, those households that have been saving will eventually go back to spending on vacations.
The supply of hotels also bodes well for metro Atlanta. The region is below the national average in hotel openings, which means existing hotels will not have lots of shiny, new competitors, Gallagher said. One reason is that the tight labor market has caused wage increases in the construction industry, slowing down development.
Tutterow added to this during his talk, saying volatility in prices and delivery times for lumber and steel also have made construction more expensive.
Select-service hotels (better than budget but not quite luxury) are doing the best right now, Gallagher said. Luxury and full-service hotels will take longer to recover because of their dependence on conferences and business travel.
The fate of business travel was much discussed. During the panel, hospitality industry lobbyist Chris Hardman pointed out that it accounts for 61% of hotel industry revenues.
"Without that, our industry would not be able to continue to survive," he said.
As of last week, Hardman said, business travel was down 71% from pre-pandemic levels.
"I think what we've seen happen is, Zoom fatigue is real," said Select Cobb's Dana Johnson, during the panel. "I think it's going to be different though — people aren't going to jump on a plane just to go for a meeting that they could do over Zoom."
Tutterow also touched on this, pointing out that less business travel saves time and money for companies.
"I am concerned that just as we taught people how to shop online, just as we taught them how to work from home, a lot of businesses now are questioning how much time they put their executives and their sales staff on the road," Tutterow said.
Under the Gold Dome
Policy and legislation were also discussed during the panel. Hardman said that House Bill 317, which started charging hotel/motel taxes for Airbnb stays, will generate millions in new revenue for the state.
Other new laws allow open alcoholic beverages to be sent up to hotel rooms.
"Before this year, that was illegal … I know many of you might not have been complying with the law at the time," Hardman said.
Another law legalizing to-go cocktails was a boon to restaurants, Hardman and Goudey said.
Hardman also praised the state for instituting liability protection to protect businesses from "frivolous lawsuits," making it harder for workers to sue employers over COVID-19.
Goudey also said the state had been decidedly pro-business during the pandemic.
"We're really happy that we're in a state where our … elected officials have fought for business. Gov. Kemp especially took a lot of heat for it last year," Goudey said.
Looking forward, Hardman said next year's election means there will be controversial bills brought in the next state legislature — religious liberty, gun rights, immigration and the like.
"Those are all going to be dropped and we're gonna have to play defense to ensure those don't restrict our hotels," he said.
Hardman will also be working to oppose "worker recall" laws, which some states have passed. The laws mandate that businesses must hire back laid off workers before considering other applicants.
The next generation
KSU professor Leonard Jackson, one of the panelists, runs the Hospitality Degree Program at KSU. The role that Generation Z will play in hospitality — and whether they see it as a fruitful career — is another source of anxiety for some in the industry.
Jackson said KSU hopes to build Georgia's first hospitality college over the next five to 10 years.
"It can be a one-stop shop for you for talent," Jackson said. "We need talent in culinary skills, talent in hotel operational skills, talent in conventional sales and meeting management."
Jackson advised hospitality companies to have a line item in their marketing budgets for university relations. That way, they'll build relationships with students that are committed to the industry, helping reduce turnover problems.
Even if hotels have trouble hiring young people, Tutterow offered a silver lining about the new generation's spending habits — they seem to enjoy "experiential" spending rather than just purchasing items, which is good for travel and tourism.
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