Economists, politicians, and business leaders are split on whether the U.S. economy is heading for a recession, is already in one, or will merely experience a slowdown. With continued supply chain disruptions, geopolitical conflicts (most notably the war in Ukraine), and the Fed’s determination to continue increasing the federal funds interest rate, there is tremendous uncertainty around inflation and where the economy is heading. Mixed signals abound, however U.S. gross domestic product (GDP) increased for the first time this year in the third quarter, expanding at a higher-than-expected 2.6 percent annually. Unemployment remains low, wage increases are strong and while growth and earnings are slowing, most consumers and corporations are in good financial condition with healthy underlying credit.

Despite macroeconomic uncertainties and capital markets volatility, remarkably the post-pandemic related travel boom shows little signs of tapering off. Maintenance of pricing integrity during the COVID downturn has in part resulted in the first time that a lodging sector recovery is being led by average daily rate as opposed to demand and occupancy. While leisure demand continues to be strong, individual corporate travel continues to lag as many employees resist return to office initiatives. Some pre-pandemic meetings that were automatically deemed to be in-person have now shifted to virtual given the institutionalization and proliferation of Zoom and other online video meeting platforms. Group demand has largely recovered with many markets across the country experiencing demand equal to or above pre-pandemic levels. Although still well below pre-pandemic levels, inbound international travel has improved since the U.S. eased restrictions in November 2021 and lifted vaccination requirements in June 2022. To date, overall U.S. hotel demand and pricing power have remained resilient. However, labor shortages, rising cost of debt, supply chain constraints, and rising inflation of operating costs are challenging the sector. In addition to the need to replenish FF&E reserve accounts, many owners are being forced to execute deferred capital expenditure refurbishments to remain in brand PIP compliance.

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