22 September 2021

Economy Revs Up as Americans Increase Spending on Flights, Lodging, Dining Out

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Restaurant and hotel bookings are up. Airplane tickets are selling fast. Consumers spent more on gyms, salons and spas in recent weeks than they have since the coronavirus pandemic began.

The U.S. economic recovery is picking up steam as Americans increase their spending, particularly on in-person services that were battered by the coronavirus pandemic.

The rising number of Covid-19 vaccinations, falling business restrictions, ample household savings and injections of federal stimulus funds into the economy are fueling the surge, economists say.

“I’d rather travel than do almost anything,” said Betsy Cole, 81 years old, who booked a flight to Boston to see family and friends in late spring and hopes to visit the British Virgin Islands for a sailing trip later this year. She also booked two international trips for next year. She looks forward to camping in the Sahara and riding a camel in Morocco, as well as enjoying time on the water in the Greek Isles.

Ms. Cole, of Naples, Fla., said she is finally comfortable with the prospect of traveling again after avoiding crowds, restaurants and trips throughout the pandemic. She said she is more at ease now that she is fully vaccinated and many others are as well.

“I want to get going and get traveling again because I’m not sure I’ll be doing quite as much when I’m 90,” she said.

Economists surveyed by The Wall Street Journal this month raised their average forecast for 2021 economic growth to 5.95%, measured from the fourth quarter of last year to the same period this year, from a 4.87% projection in February’s survey. The higher figure would mark the fastest such pace in nearly four decades.

“You’re looking at the biggest surge in economic growth that most people who are working today have ever experienced in their working lives,” said Tim Quinlan, senior economist at Wells Fargo Securities. He expects consumer demand and trillions of dollars in built-up savings to propel economic growth “in a manner that’s going to take people’s breaths away.”

The pickup is arriving sooner than many economists had expected at the start of the year, before Congress and the White House approved a $1.9 trillion stimulus package. In the Journal’s March survey, respondents upped their average forecasts of economic growth in the first quarter to an annualized rate of 4.9%, from 2.8% in February’s survey.

Much of the jump in spending is for services that involve proximity to other people. The weekly average of the number of seated diners tracked on restaurant reservation platform OpenTable is up markedly from mid-December, but still down 33% from 2019. In Miami, the recent upsurge in activity has put restaurant attendance 8% above where it was in 2019.

Spending on gyms, salons and spas recently climbed to the highest levels since the pandemic first hit the U.S., forcing many to shut down and scaring away clients fearful of infection, according to data from Earnest Research, which tracks trends in credit- and debit-card purchases.

Travel-related businesses are among the big beneficiaries. Spending on vacation rental sites Airbnb and Vrbo surged in the week ending March 3, and is well above pre-pandemic levels, according to Earnest Research. The number of transactions for air travel, lodging and on online travel platforms has climbed sharply in recent weeks, and is now at the highest level since the pandemic began, the firm’s data show.

Some of this spending might be for future travel, but much is happening already. U.S. hotel occupancy hit a 20-week high of 49% in the week ended March 6, led by small and medium-size hotels, according to STR, a research firm specializing in the hospitality sector. Occupancy is still down nearly 30% from 2019.

Randy Vasquez, director of guest services at the Inn of the Five Graces in Santa Fe, N.M., said bookings started to suddenly pick up in March after a slow winter. “I don’t know what happened, in all honesty. I think it’s the vaccination,” he said.

More than 12% of the overall population has been fully vaccinated, including almost 39% of Americans age 65 and above, according to the U.S. Centers for Disease Control and Prevention. Airfare spending among consumers over the age of 75—who are more likely to be vaccinated—is up significantly from June, according to BofA Global Research analysis of Bank of America card data.

At Mohonk Mountain House, a resort hotel in New York’s Hudson Valley, the pandemic dragged down revenue more than in the 2007-09 recession. The resort hotel’s group business—which caters in particular to family reunions—was hit especially hard. “We’d have families that were booked and the week before they arrive they’d call and say, ‘We can’t come because someone in the group got infected,’” said Barbara Stirewalt, the resort hotel’s vice president and general manager.

The pain at the hotel persisted through the winter until interest began to tick up in mid-to-late January. Though some of that is for summer stays, Ms. Stirewalt also reported a recent influx of family-reunion queries for coming months. “I was just this afternoon checking in a 50th anniversary party of a family,” said Ms. Stirewalt on March 12. “They said, ‘We have vaccinations, but we still don’t want to have a party…So the next best thing was to come to Mohonk.’”

Household savings totaled $3.9 trillion in January, up from $1.4 trillion in February 2020, before the pandemic hit the U.S. economy.

The $1.9 trillion federal stimulus legislative package approved this month is expected to further drive up savings.

Higher-income Americans, who have amassed the bulk of the savings during the pandemic, often splurge more on services. They weren’t willing or able to do much over the past year, a BofA Global Research analysis notes, suggesting there is a lot of pent-up demand among wealthier households.

The incipient boom in travel-and-leisure spending comes after a year in which consumers shunned services while shelling out money on goods. Spending on services, adjusted for inflation, was down 7% in January from a year earlier, while spending on goods was up nearly 10% over the same period, according to the Commerce Department. The splurge on goods continues, with U.S. ports now suffering backlogs of ships carrying tens of thousands of containers and long delays unloading freight.

Stronger spending on services is already helping spur the labor-market recovery. Hiring accelerated in February, with most of the gains in leisure and hospitality businesses, and economists project the U.S. economy will regain millions of jobs this year.

The recovery will take time though. There were 9.5 million fewer jobs last month than in February 2020, the month before the pandemic hit, and employment is still down 6% compared with pre-pandemic levels, according to the Labor Department.

Service businesses reliant on downtown office workers still face challenges as people continue to work remotely, though vaccinations and gradual office reopenings are helping boost activity.

At Compass Coffee, a Washington, D.C.,-based coffee roaster with bricks-and-mortar coffee shops, employment is a fraction of where it was before the pandemic struck.

“We really depended on lots of people coming off the Metro every day to grab a cup of coffee,” said Michael Haft, co-founder of Compass. “Without people returning to offices, it’s just very hard.”

The outlook is brightening though. Compass rebooted service at two downtown coffee shops earlier this month and plans to reopen the remaining closed locations by the summer.

Better weather, vaccine distribution and consumers’ desire to leave the house are driving more foot traffic downtown, said Compass co-founder Harrison Suarez. At one office-district location, customer counts doubled one day after doors reopened in March and again the next.

“It’s a lot of our old regulars,” Mr. Haft said. “It’s just really nice to see those same people coming back.”

Write to Sarah Chaney Cambon at sarah.chaney@wsj.com, and Gwynn Guilford at gwynn.guilford@wsj.com.

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