An Economic and Geopolitical Outlook at HSMAI’s ROC 2018

“Garbage in, garbage out” is a classic principle of computer science principle — succinctly explaining that bad input such as flawed programming or poor data yields bad output — but you can apply it to almost any field of endeavor. That includes revenue management, where accurate forecasting is dependent on a clear view of the landscape ahead.

At HSMAI’s Revenue Optimization Conference (ROC) in Houston next month, Bernard Baumohl will offer just that, presenting a keynote on “The Economic and Geopolitical Outlook.” We recently got a preview from Baumohl, chief global economist for the Princeton, New Jersey–based Economic Outlook Group:

The economy is entering uncharted territory. “We are at a pivotal moment right now. That is because this is only the second time in U.S. history that the economy has grown for nine straight years. Therefore, we have very little history to rely on as to how consumers and businesses behave after they have been spending and investing for nearly full decade. We know that the U.S. economy entered the year quite strongly — there was a lot of positive momentum coming into 2018, and there is the expectation that there still is room to grow.”

Things look good for hotels. “Obviously, if you’re in the lodging industry, you are concerned about the outlook for growth. Will we be seeing consumers do more leisure travel? Will business budgets allow for their executives to travel more as well? And there certainly is reason for optimism there. We had some tax cuts that provided additional income to households, and certainly businesses have seen significant increases in earnings compared to last year. That, too, will allow companies to perhaps increase the budget for business travel. There are also demographic issues that play a role here that would allow for more travel. Millennials and Baby Boomers seem to have a preference for experiential spending, as opposed to just buying more stuff. So there is a lot that would suggest that revenue growth will accelerate and that demand will be strong, occupancy rates will continue to rise, and that despite the increase in the pipeline of hotel rooms, demand is going to likely keep up with that pace.”

But there’s also a lot of uncertainty ahead. “It is very important for the lodging industry and for business leaders in general to be aware that we’re also at a rather treacherous moment in this business cycle, for a variety of reasons. One, we’re now seeing short- and long-term interest rates march higher, and that obviously raises the cost of borrowing. That could affect consumer and business spending down the road. We also don’t quite yet know to what extent the tax cuts passed late last year will actually generate more spending on the part of consumers and businesses. With the expansion of the business cycle so long in the tooth now, there are concerns about a recession in the next year or two. This is normal speculation, and if that’s the case, you have to wonder whether businesses are really interested in doing any long-term capital-spending projects.”

Plus, there are flat-out risks. “Another factor that can really raise the risk for the economy is the extraordinary political turmoil in the United States right now. The multiple legal investigations going on into the Trump administration is something that is concerning to investors and to business leaders, because it’s going to have an impact on the mid-term elections. You have to wonder whether, come November, the Republicans lose control of the House and the Democrats take over, what impact is that going to have on the future of Trump’s economic policy? Then of course we have two other important factors: rising oil prices, which obviously raises the cost of travel; and certainly last but not least, we have a series of geopolitical threats that are emanating around the world, whether it’s the Korean Peninsula, whether it’s increased tensions with Russia, the Middle East, China. All of these issues have been playing out for about the last two or three years, but the level of tension keeps getting higher and higher, and you have to wonder whether at some point it’s going to culminate in a conflict.”

What does it all mean? To find out, join HSMAI at ROC on June 19–20. To learn more about the program — and to register — click here.

Insight Type: Articles