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Hospitality sector well prepared for slowdown, services index shows

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Rebecca Valli

The service sector slowed the pace of its expansion in September, according to the Non-Manufacturing Index (NMI) released on Thursday by the Institute of Supply Management (ISM). The reading comes days after the institute published unfavorable data on last month’s manufacturing sector, fueling concerns of an overall economic slowdown. 

Christopher Anderson

Professor at the Cornell School of Hotel Administration

Christopher Anderson, professor at Cornell University’s School of Hotel Administration and the director of the Center for Hospitality Research, says that the service sector remains robust, despite signs of an upcoming slowdown in hospitality.

Anderson says:

“The service sector remains very robust largely owing to moderated capacity expansion. While the NMI index was lower than August it still indicated service sector expansion. 

“What is particularly interesting to note is that the expansion may be hindered by the strength of the economy and the labor force as we see prices and orders’ backlogs increasing faster than August and inventory expansion slowing perhaps signally that future growth will come from price increases versus volume.

“We see these trends specifically within hospitality as the sector seems well prepared for an eventual slowdown. Air enplanements have been negatively impacted by capacity limitations as a result of continued delays with the 737. As a result, these capacity reductions have stabilized prices and airlines continue to have pricing power.

“On the lodging side, developers have been much smarter upon capacity expansion during the last economic cycle – for example, 2018 saw a 2.5% growth in demand with only a 2% growth in supply – as a result hotels should have more stabilized prices as we enter the next slowdown – especially as compared to the last recession where entering the financial crisis lodging faced a double-edged sword of declining demand and increasing supply.”

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