Industry Update
Press Release27 October 2010

Hotel Industry Pulse (HIP): U.S. hotel recovery slows

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Smith Travel Research

Economic research firm e-forecasting.com, in conjunction with STR, announced HIP dropped in September. After an increase of 1.6% in August, HIP went down 2.2% in September.

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HIP, the Hotel Industry Pulse Index, is a composite indicator that gauges business activity in the United States’ hotel industry in real time, similar to a GDP measure for the industry. The latest monthly change brought the index to a reading of 87.9. The index was set to equal 100 in 2000.

HIP's six-month growth rate, which historically has signaled turning points in U.S. hotel business activity, has begun to deteriorate. In September, the six-month growth rate went up 9.6%, after going up 16% in August. It is useful to benchmark against the long-term growth rate of 3.2% as it is the same as the 38-year average annual growth rate of the industry's gross domestic product.

“September’s report gives us pause and provides questions to the sustainability of the U.S. hotel industry recovery. It will be important to keep an eye on next month's reading and also pay special attention to the leading indicator report released next week, the HIL, to see if the fundamentals are shifting once again,” said Evangelos Simos, chief economist of e-forecasting.com.

The probability of business expansion fell away from the high marks reached the last few months, hitting 70.8% in September. Since January, the probability had been near 100%.

The Hotel Industry Pulse Index is a hotel industry indicator which was created to fill the void of a real-time monthly indicator for the hotel industry that captures current conditions. What the indicator does is provide useful information about the timing and degree of the industry’s linking with the U.S. business cycle for the last 40 years. Simply put, it tracks monthly overall business conditions in the industry, like an industry GDP, and points in a timely way to the changes in direction from growth to recession or vice versa. The composite indicator is made with the following components: revenues from consumers staying at hotels and motels adjusted for inflation, room occupancy rate and hotel employment, along with other key economic factors that influence hotel business activity.

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