by It took a while, but people are about to catch up on experiences lost during the pandemic.
While a minority of deep-pocketed travelers still face, and pay, four-figure airfares to Paris and Tokyo, prices are finally falling in the leisure economy, federal data for the past few months shows.
That’s good news for consumers, as well as economists and policymakers looking for reasons for optimism that the economy can regain footing without slipping into recession.
Figures from the Consumer Price Index released Wednesday morning showed airfares were down 19% in June from a year ago and car rental rates were down 12%, for the fifth consecutive month of declines. Eating out, which includes restaurant meals, continued to rise, but the category’s annual growth rate of 7.7% in June slowed from March’s 8.8%. Ticket prices for sporting events increased last month, but the increase came after three straight months of declines.
“It’s the consumer coming to the end of their ‘revenge spending,’” said Skanda Amarnath, executive director of the Employ America macroeconomic policy group.
The downward trend comes a year after inflation reached a four-decade high of 9.1% in June 2022, as consumers poured money into the services sector.
Early in the coronavirus pandemic, homebound consumers rushed to purchase physical goods like stationary bikes, appliances and work-from-home pajamas, even as supply chain bottlenecks drove up prices and delayed shipments. deliveries. But as the economy reopened and more people ventured out, pent-up demand shifted toward travel and entertainment, driving up prices at bars, hotels and airlines that often paid more for hard-to-find workers.
Now, with inflation falling to 3% in June and Consumer confidence reaches its highest level since January 2022, economists are increasingly seeing signs of a return to normalcy.
Deutsche Bank’s chief US economist, Matthew Luzzetti, said he still sees a mild recession this year, and expects more pullbacks in consumer spending and bank lending. But «at the moment,» he said, «consumer spending doesn’t look recessive.»
Not everyone tightens their belts in the same way. While many have been taking shorter and cheaper trips closer to home this summer, the overall demand for travel remains high. a recent Bankrate Survey found that 63% of American adults have traveled or plan to travel for pleasure this year, up from 58% last year.
At the same time, the share of those citing higher prices as a top problem dropped to 53% this year from 57% last year, possibly reflecting lower costs for gasoline, airline tickets and rental cars.
However, some travel costs remain steep, and high-income vacationers are spending anyway.
Bankrate found that about 85% of households earning more than $100,000 a year reported leisure travel plans this year. And many of them are increasingly shifting their views from domestic hot spots to international destinations.
Americans traveling abroad this year are counting on a median household income of nearly $110,000, compared with less than $83,000 among US travelers overall, according to consulting firm Destination Analysts. Socialites abroad also have more vacation time to spend and greater financial security than the average American traveler, the group found.
Strong demand for high-value overseas getaways is driving up the prices of overseas travel. AAA said in the spring that international flight bookings increased more than 200% since last year. The flight booking platform Hopper said in May that average airfares to Europe and Asia have increased by more than $300 since last summer, to more than $1,100 and more than $1,800 per ticket, respectively.
By contrast, domestic airfare averaged just $306 per ticket, down 19% from the previous year.
To accommodate the strong demand, United Airlines has said that its international network will grow twice as fast of your home network this year. Delta Air Lines executives told investors in April they expected record revenue and profitability on its international routes this summer.
The federal government’s inflation gauges mostly reflect domestic consumption, meaning splurges by vacationers abroad won’t boost inflation readings at home.
“We don’t see it as much in domestic data because more of that money is used on the international side of things,” said Omair Sharif, founder and president of Inflation Insights. In fact, Sharif said he expects domestic airfares to continue to fall through the summer, even as international travel picks up.
Meanwhile, consumers staying within the US continue to have more affordable options to spend during their downtime.
Last month, Darden Restaurants, which owns Olive Garden and Longhorn Steakhouse, reported a decline in visits from low-income households compared to last year, along with a decline in alcohol sales. But both measures remain above pre-pandemic levels, suggesting a return to more normal patterns.
At the Cracker Barrel, recently noted executives a “notable drop in traffic,” with CFO Craig Pommells telling investors on June 6: “We think some of our more price-conscious guests may be cutting back on retail purchases as a way to manage their overall spending when they eat with us. ”
Amusement parks have also been affected. The Wall Street Journal reported this week that traffic to Disney parks in the US has slowed this summer, reducing wait times in lines over Independence Day weekend to nearly a decade lows.
Softer but non-collapsing demand is in line with what Federal Reserve officials hope to achieve with their interest rate hike campaign, which they halted last month.
With inflation still higher than the Fed’s 2% target, the central bank is expected to raise interest rates again at the end of the month, keeping borrowing costs for mortgages, credit cards, and home loans high. cars. Consumer spending, which accounts for about 70% of total US economic activity, will need to cool further to help drive inflation toward that target.
But economists and Fed officials also don’t want it to tank and lead to a «hard landing,» in which a slowdown in economic activity prompts employers to lay off workers en masse. If, for example, fewer travelers are buying plane tickets or dining out, employers like airlines and restaurants could lay off workers to cut costs.
Employment data released Friday showed no sign of that happening at this point, with both industries continuing to add workers. The national unemployment rate, at 3.6%, continues to hover around the lows of the last 50 years.
