Global Insight City Travel & Tourism Teleconference November 12, 2003 Copyright © 2003 Global Insight, Inc. U.S. Regional Economic Outlook Prospects for

Global Insight City Travel & Tourism Teleconference

November 12, 2003

Copyright © 2003 Global Insight, Inc.

U.S. Regional Economic Outlook

Prospects for International Travel to the United States

Quantifying Tourism for Cities

U.S. Regional Economic Outlook

Presented to:Global Insight Teleconference Forum

Presented by:Phil Hopkins

PrincipalU.S. Regional

[email protected]


mailto:[email protected]

Copyright © 2003 Global Insight, Inc. 3

Purpose: Provide U.S. to MSA-level Economic Context for Travel & Tourism Demand

U.S. macro near-term overview

Five-year forecasts by Census region

Describe near-term (2003-05) outlook for states

Describe near-term (2003-05) outlook for large MSAs

Identify high income growth MSAs that are major tourist markets

Focus on key demand indicators—income growth


Recent U.S. Macro Indicators

Favorable Sales

Orders

Stock market

House values

Industry data

Profits

Income growth

Unfavorable Employment

Bond yields, mortgages

Exports

Balance of payments


Exiting the Growth Recession: Unemployment Lags, Better Sentiment Needed

009590858075706560

12

10

8

6

4

2 120

100

80

60

40

Unemployment rate, percent (left scale)Consumer sentiment, 1996=100 (right scale)


Household Debt Loads—High But Acceptable

200520001995199019851980

9

8

7

6

5

4Perc

ent

age o

f dis

posa

ble

inco

me

Mortgage debt service paymentsOther debt service payments


040302010099989796959493929190

10

8

6

4

2

0

-2

Per

cen t

Real Consumption Spending, % Change vs. Year AgoReal Disposable Income, % Change vs. Year AgoNominal Savings Rate

Consumption Boosted by Tax Cuts:Not “Tapped Out”


Quarterly Outlook: U.S. Macro November Forecast

2003q3 2003q4 2004q1 2004q2 2004q3 2004q4

Real GDP 7.2 3.6 4.1 3.7 3.9 3.9Consumer Spending 9.1 2.4 4.5 5.2 6.3 6.1Disposable Income 9.8 2.0 9 3.9 5.8 5.5Bus. Fixed Investment 11.5 10.3 10.8 7.5 10.7 10Industrial Production 3.3 4 4.7 5.3 6.2 5.7Employment -0.3 -0.3 0.2 0.8 1.6 2.1Unemployment Rate 6.1 6.1 6.1 6 5.9 5.8Exports 11.2 7.3 8.4 10.8 15 12.7CPI 2.4 1.1 0.9 1.1 2.0 2.0Housing Starts 1.86 1.82 1.77 1.75 1.7 1.66


Forecasts for Census Regions:Annual Growth Rates, 2003–08

Personal Income

Household Income

Total Employ.

Leisure & Hospitality

Employ.

New England 4.90 4.30 1.10 1.10Middle Atlantic 5.30 4.90 1.10 0.90South Atlantic 5.80 4.30 1.90 1.60East North Central 4.40 3.80 1.10 1.20East South Central 4.90 4.00 1.40 1.20West North Central 5.40 4.50 1.40 1.30West South Central 5.70 4.20 1.30 2.00Mountain 5.90 4.00 2.20 2.20Pacific 5.20 3.70 1.60 1.30


Growth Rate in Disposable Income, 2003–05

5.5 to 6.55.2 to 5.44.5 to 5.13.1 to 4.4


Growth Rate in Total Employment, 2003–05

1.4 to 3.31.1 to 1.30.8 to 1.00.0 to 0.7


Service Sectors Provide Job Growth

State Employment Growth Rates 2003–05Professional and business services: 3.9%

Other services: 2.5%

Construction: 2.3%

Leisure and hospitality services: 1.5% Arts, entertainment, and recreation: 2.1% Accommodation and food services: 1.4%

Education and health services: 2.3%

Trade, transportation, and utilities: 1.1% Retail trade: 0.5% Wholesale trade: 1.5%


Large MSA Household Income Levels, 2003

$60.0

$70.0

$80.0

$90.0

$100.0

$110.0

$120.0

$130.0

$140.0

$150.0

$160.0

0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0

Tourism Employment Index

Pe

rso

na

l In

co

me

/Hh

hld

(th

ou

sa

nd

s $

)

Las Vegas

San Francisco

Orlando

San Jose

Honolulu

New Orleans

New York City

New Haven


Disposable Income/Household in Large MSAs in 2003: Top 20

San Jose: $131,900

San Francisco: $131,700

New Haven: $115,000

Bergen/Passaic: $112,000

Nassau/Suffolk: $110,400

Middlesex: $110,200

Newark, NJ: $109,400

Washington, DC: $102,200

Orange Co.: $101,900

Oakland: $100,900

Seattle: $97,800

Wet Palm Beach: - $97,700

Anchorage: $97,500

New York: $96,400

Houston: $93,600

Chicago: $93,100

Boston: $92,400

Honolulu: $92,000

Minneapolis: $90,200

Ventura, CA: $89,200

Large MSAs: $83,200

United States: $77,500


Austin: 6.7%

Phoenix: 6.3%

Atlanta: 6.2%

Washington, DC: 6.0%

Las Vegas: 6.0%

Wilmington, DE: 5.9%

Raleigh: 5.8%

Dallas: 5.7%

Fargo: 5.7%

Charlotte: 5.7%

Orlando: 5.6%

Houston: 5.6%

Tucson: 5.6%

Richmond: 5.6%

Riverside: 5.5%

Middlesex: 5.5%

Seattle: 5.5%

Baltimore: 5.5%

San Antonio: 5.4%

Charleston, SC: 5.4%

Annual Growth Rates in Total Disposable Income in Large MSAs 2003–05: Top 20


Final Thoughts

Income Growth: disposable and per household is strongest in Sunbelt, Pacific, Mountain, and South Atlantic States.

High levels of household disposable income are still in the Northeast, Great Lakes, and Pacific MSAs.

Major domestic destinations/convention centers are important drivers for MSAs.

Job growth would help—confidence leads to willingness to spend disposable income.

Travelers are still price sensitive, but leisure travel has been sustained over the past several years.

Business travel is expected back (at different price points) next year.

Prospects for International Travel to the United States


Presented by:Adam Sacks

Managing DirectorTravel & Tourism

[email protected]



U.S. Inbound: Cities Hold Greatest Stake

• Overseas international inbound to cities registered approximately 27 million in 2002

• Over 90% of international trips

New York City23%

Los Angeles13%

Miami12%

Orlando10%

San Francisco

9%

Honolulu9%

Las Vegas7%

Metro DC6%

Chicago6%

Boston5%

Distribution of Overseas Inbound Travel, Top 10 Cities, 2002

Source: Office of Travel & Tourism Industries, International Trade Administration


U.S. Inbound: The Big Picture

• International inbound travel to the United States is currently at 1990 levels.

• Apocalypse now: 9/11, security tightening, SARS, and Iraq.

• The “big question” ($23 billion): Are we in the midst of a cyclical or structural shock?

30,000,00035,000,000

40,000,00045,000,000

50,000,00055,000,000

1990

1992

1994

1996

1998

2000

2002

2004

2006

Total International Inbound to US


Cycle versus Structure?

• Arguments in favor of cyclical recovery

– All other shocks have experienced a recovery to trend (Gulf War I, Asian economic crisis)

– Pent-up demand

– Economy

• Arguments in favor of structural shift

– Ongoing security fears

– Ongoing security-related restrictions

– Shift in preferences


International Travel in 2003(Growth rates 03/02)

-5.0%

3.1%

4.2%

-1.0%

-3.3%

-6.5%

2.8%

World -2.0%

-7.9%

5.5%

-2.1%

-3.4%

-3.8%


The Balance of Things

To what extent is suppressed U.S. outbound making up the difference for U.S. inbound?

• Inbound will register 10.8 million fewer trips in 2003 than in 2000, while outbound will register 6.8 fewer trips.

• On a balance of trade basis, that equates to a net loss of 4 million trips—and $8.9 billion. This is dependent on would-be outbound trips being converted into domestic travel.

• There is good evidence of this, as domestic leisure travel has held up relatively well in the United States throughout the recession and slow economic recovery.


World Economy Overview and Issues

• The world economy’s performance in this cycle—marked by subpar, stop-and-go growth—has been disappointing.

• The U.S. rebound should lift the rest of the world, but the pace of recovery will be uneven across regions.

• World real GDP growth will pick up from 2.4% this year to 3.3% in 2004. Global output will remain below potential.

• Beginnings of modest recoveries in Western Europe and Japan.

• Asia’s expansion, disrupted by SARS, is regaining strength.

• Take-home point: Economic fundamentals are aligning to produce the beginnings of a recovery of travel to the United States.


Sluggish Growth in the World Economy

-3-2-10123456

1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Real GDP Industrial Production

(Percent change)

The world economy is in recession when real GDP growth is below 2%


Fiscal and Monetary Policy Will Boost Growth Later This Year

Fiscal Balance

(Percentage of GDP, 2003)

Net Cumulative Cut in Policy Rates Since January 2001

(Basis points)

Australia -1.0 150

United Kingdom -2.7 250

Canada 0.5 275

Japan -6.8 25

Sweden 1.3 125

Switzerland -2.2 325

United States -4.0 550

Eurozone -2.5 275


Canada’s Economic Growth Has Slowed

• Consumer spending, home-building, and public investment are leading Canada’s expansion.

• Exports have declined in 2003, however, in response to currency appreciation, Toronto’s outbreak of SARS, and beef and lumber trade restrictions.

• The Canadian dollar has appreciated in response to a trade surplus and attractive interest rates spreads. Yet, it remains below its PPP value of 81 U.S. cents.

• Travel to the United States is down 13% from its 2000 peak.

• Stronger Canadian dollar presents significant opportunities to attract the Canadian traveler.


Exchange Rate Remains Effective at Predicting Canada to United States Travel

-15%

-10%

-5%

0%

5%

10%

15%

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

Canada to US Real exchange rate


The Widening U.S. Current Account Deficit

(Billions of dollars) (Percent of GDP)

-800

-600

-400

-200

0

200

1980 1983 1986 1989 1992 1995 1998 2001 2004 2007

-8

-6

-4

-2

0

2

Current Account Deficit Deficit as % of GDP


The Canadian Dollar Is Rising

56

60

64

68

72

76

80

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

(U.S. cents per Canadian dollar)


Mexico: Stability Under NAFTA

• Mexico has achieved remarkable macroeconomic stability under NAFTA. Cautious monetary policies have lowered inflation from 35% in the mid-1990s to 4% today.

• Mexico’s sluggish recovery is led by consumer spending and government-funded construction. Manufacturing remains weak, awaiting a recovery in exports.

• Capital inflows and an overvalued peso have hurt competitiveness against emerging markets, notably China.

• 2003 travel will be only 6% below the 2000 peak.

• Full recovery by 2005 based on economic cycle.


Mexico’s Real GDP Growth Will Resume

-2

0

2

4

6

8

1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007

Mexico United States

(Percent change, real GDP)


South America Recovers, But Risks Are High

• Argentina’s economy is turning around as exports respond to a 65% peso depreciation. However, full recovery will take a decade and risks remain high under the current government.

• Brazil faces conflicting challenges: revive growth, subdue inflation, meet debt payments, and improve social conditions. High interest rates are undermining the domestic economy.

• In Venezuela, recovery from a deep recession will not arrive until President Chavez leaves office, perhaps in 2004.

• Chile’s economy will accelerate sharply in 2004 as a free trade agreement with the United States takes effect and exports strengthen.

• Peru’s strong economic growth is threatened by social unrest.

• Overall, South American travel to the United States is down 50% from the 2000 peak, with the slow recovery beginning next year.


Real GDP Growth in South America

-12

-9

-6

-3

0

3

6

Brazil Argentina Venezuela Colombia Chile

2001 2002 2003 2004 2005

(Percent change)


A Delayed Upturn in Western Europe

• Europe’s recovery is lagging. Unemployment is near 9%, and confidence remains depressed. A strong euro, uncompetitive labor costs, and cautious policies have undermined growth.

• Once inflation falls below 2%, the European Central Bank is expected cut its key rate by early 2004.

• An aging population, inflexible labor markets, costly pension systems, and anti-immigrant sentiments will limit long-term economic growth to 2.0-2.5%.

• Western European travel has begun to slowly recover. It will continue through the next two years given a strong euro and economic rejuvenation. Still, the forecast reflects a structural shift.


Real GDP Growth Rates in European Countries

0

1

2

3

4

France Germany Italy Spain U.K.

2001 2002 2003 2004 2005

(Percent change)


0.70

0.80

0.90

1.00

1.10

1.20

1.30

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

The Euro Will Appreciate Further

(Dollars per euro)


Slow Progress in Japan

• The economy’s acceleration in 2003 reflects broad gains in real exports, consumer spending, and business investment.

• Japan’s economy suffers from several long-term problems: asset deflation, bad bank loans, rising government debt, ineffective monetary policies, and structural inefficiencies.

• A more expansionary monetary policy has emerged, easing the pain of restructuring in the banking and industrial sectors.

• The Bank of Japan will intervene in currency markets to keep the yen from appreciating much beyond 110 per dollar.

• Despite a decline of 44% from its 1997 peak, Japan is our #2 overseas market and must be fostered. However, a shift to closer destinations is structural. Full recovery is not expected in the next five years.


Japan’s Economy Has Limited Growth Potential

-1

0

1

2

3

4

5

6

7

1987 1990 1993 1996 1999 2002 2005 2008

(Percent change, real GDP)

Japan’s long-term real GDP growth trend is only 1.8%; the country’s population will peak in 2007


Other Asia/Pacific: A Bright Spot

• Asia’s rapid growth is led by a boom in exports and high-tech industries. Monetary and fiscal policies are accommodating.

• In South Korea, consumer spending and home-building have retrenched after the borrowing binge of recent years.

• China’s strong expansion is driven by foreign direct investment, exports, and public infrastructure spending.

• China, Hong Kong, and Malaysia will benefit from the dollar’s depreciation. By 2006, China will be forced to revalue.

• Certain key markets have declined only slightly since 2000 (India, Philippines, and South Korea). Australia is on the mend.

• Beginning in 2004, there’s a full-swing turnaround for Asian travel to the United States, but it is still 10% below the 2000 peak in 2007.


Asian Outbound Travel: Rebound to Come

(Compound Annual Growth, 2003-2008)

0%

2%

4%

6%

8%

10%

12%C

hina

Taiw

an

S. K

orea

Phi

lippi

nes

Hon

g K

ong

Indi

a

Sin

gapo

re

Asi

a

Mal

aysi

a

Tha

iland

Japa

n

New

Zea

land

Aus

tral

ia

(Compound annual growth, 2004-08)


-30.0%

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

Canad

a

Mex

ico

West

ern

Europe

South A

mer

ica

Oce

ania

Asia

Mid

dle E

ast

2002 2003 2004 2005

U.S. Inbound: At a Turning Point

Annual Percentage Change


Conclusions

• U.S. and global economic expansions are underway; economic growth will strengthen in the months ahead.

• South America, Japan, and Europe are experiencing systemic challenges, slowing their economic recoveries.

• Widening current account imbalances will lead to more dollar depreciation. This will help Canadian and European recovery in particular.

• Declines in many markets represent a structural shift in demand for travel to the United States—not a typical cycle.

• Best opportunities for recovery lie with Canada, the United Kingdom, Germany, and selected Asian markets.

Quantifying Tourism for Cities


Presented by:Adam Sacks

Managing DirectorTravel & Tourism

[email protected]



Outline

• Challenges to measuring tourism at the city level

• Data sources for measuring city tourism

• Techniques for measuring city tourism

• A solution: City Tourism Impact


Challenges to Measuring City Tourism

• Geographic distinctions

• MSA, counties, and partial counties

• Limited samples on syndicated data

• After top 40-50 cities, data breaks down

• Determining economic linkages

• Determining the value of travel to a city’s economy, employment, payroll, and tax base is not straightforward


Data Sources for City Tourism

• Demand side

• Syndicated national surveys (DK Shifflet)

• OTTI in-flight survey

• Supply side

• 4-5 digit sales and employment

• BLS, BEA, and Global Insight

• Hotel data (Smith Travel)

• Economic Model

• IMPLAN

Mijk = APMijk * Mijk / ^Yi * Y


Data Sources for City Tourism, DEMAND

• DK Shifflet PERFORMANCE/MonitorSM

• Largest sample of domestic travelers in the industry allows deeper measurement

• Comparable survey results across the United States with representative stratified sample

• Provides city-level traveler volume and profile information to approximately 30 cities

• 135,000 households contacted for each month of the year (ask about past 3 months travel behavior)

• Census-balanced, projectable to U.S. population

• Travel to every U.S. destination tracked at the city and county level since 1992—over ten years of trends analysis


Data Sources for City Tourism, DEMAND

• OTTI Data

• Volumes: Immigration and Naturalization Service (INS) partnership (all U.S. non-citizens must complete INS I-94 to enter the United States)

• Details: OTTI In-flight survey provides activities, traveler profile, and destinations

• Challenges with in-flight survey: limited sample, some issues with coverage, and excludes Canada and Mexico


Data Sources for City Tourism, SUPPLY

• Supply Side Data• Sales and employment

• Provides information on identifiable sectors (accommodation, recreation, transportation)

• NAICS vs. SIC

• NAICS provides new opportunities!• 350 new industries

• Transportation, entertainment, recreation, and lodging all have new industry definitions and categories

• By early next year, Global Insight will have completed complete historical conversion of its county-level databases at the four-digit level

• Remaining challenge – How to determine tourism’s share of food and beverage and retail, esp. when related to day trips.


Techniques for Measuring City Tourism

• Bottom line: Combination of demand, supply, and economic modeling

Demand Side

Supply Side

Economic Model

Est

imat

ion

T

ech

niq

ues

Ex

pe

nd

itu

res

Output: volumes, spending, jobs, wages, taxes, economic impact


Techniques for Measuring City Tourism

• Sample of Estimation Techniques

• Option 1: Reconcile discrepancies between demand and supply side

– Use this reconciliation to estimate non-identifiable tourism expenditures

– Day trips and international are particularly important

• Option 2: Use destination-specific information wherever possible

• Option 3: For smaller cities, need to rely more on supply side and local information/educated assumptions

• Option 4: Determine ratio of day trips to overnight trips using multiple-year aggregation of demand data. Can apply this to supply side data on lodging to estimate day trip component.


City Tourism Impact Study

• A partnership product between Global Insight and DK Shifflet and Associates.

• Objective: Provide affordable and comparable visitor and economic impact results for top U.S. cities.

• Benchmarking of top 100 cities

• Consistent approach using all available data (includes both domestic and international)

• Industry rankings for each city

• Composition of tourism impact

• Provides total visitor volume, expenditures, and economic impact (production, wages, employment ,and taxes)

• Official launch in spring 2004


Thank you!

Adam SacksManaging DirectorTravel & Tourism

[email protected]

Documents

Global Insight City Travel & Tourism Teleconference November 12, 2003 Copyright © 2003 Global Insight, Inc. U.S. Regional Economic Outlook Prospects for