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Alan Greenspan’s green light for continued good times in hospitality industry

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7 November 2006
In recent posts, I have detailed why the hospitality industry is well poised to continue record profits and sustained growth for several more years. But I have also noted that even though the hospitality industry has its fundamentals in place, the industry enjoys (or suffers) almost a 1 to 1 correlation with changes in the U.S. economy’s GDP. And all the worry over the sagging housing industry’s impact on the economy has caused a lot of concern. (See “Good Times Now, But Speed Bumps Ahead?”) Yesterday, Alan Greenspan calmed those concerns somewhat.

On November 6, 2006, former Federal Reserve Chairman Alan Greenspan told a group of financial advisors in Washington, DC that he is not worried about the impact of sluggish housing on the U.S. economy, and thinks the economy is about to rebound.

According to Nell Henderson’s Washington Post article today, Greenspan commented on the sharp slowdown in U.S. economic growth to a sluggish 1.6% in July through September — largely because of the steep fall off in home construction. Greenspan said, “It looks as though the worst is behind us in terms of the effect of the housing slump on economic growth.” He also commented that the significant slowing is “quite likely to be temporary” although he said the housing downturn itself has “a way to go” before it hits bottom.

Fortunately, Greenspan thinks that the housing slowdown’s effect on the rest of the economy should abate in the months ahead, but reflected that other industries are enjoying healthy profits, consumer spending is solid, and “the global economy is in extraordinarily good shape.” All in all, he concluded that “Things don’t look bad.”

Both tracks look clear

In order for things to go well in the hospitality industry, there are really two sets of potentially independent conditions that must be favorable.

First, the industry fundamentals must be sound — including basic supply and demand factors. Those factors have never looked better!

Second, the U.S. economy must be growing and thriving. There is almost a 1 to 1 correlation between the direction of the hospitality industry’s profitability and growth of the U.S. GDP. In other words, even if the all the hospitality industry fundamentals are great, if the U.S. economy drops off, so will the hospitality industry. The housing slow down had many of us concerned about the direction of the U.S. economy and its impact on hospitality.

Alan Greenspan’s comments yesterday suggest that we have a green light on both tracks. Let’s hope he is right, because we should enjoy good times for quite a while if he is.

Related postings:

Hospitality Lawyer — Good times now, but are those speed bumps ahead for the hotel industry?

CMBS Hotel Loans: Is that a train wreck ahead or just a “pig going through the python”?

Hotel Lawyer with Pulse of the Phoenix Conference: “Ebullient Foreboding”

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