Share When prices rise for energy, food, commodities, and other goods and services, the entire economy is affected. Rising prices, known as inflationimpact the cost of livingthe cost of doing business, borrowing money, mortgages, corporate and government bond yieldsand every other facet of the economy. Inflation can be both beneficial to economic recovery and, in some cases, negative. If inflation becomes too high the economy can suffer; conversely, if inflation is controlled and at reasonable levels, the economy may prosper.
A narrowing of the gap between the demand and supply of labor, as evidenced by the declining unemployment rate usually results in upward pressure on wages as should the ongoing political actions to elevate minimum wages.
Wage growth has been sluggish during the recovery from the Great Recession. Accelerating wage growth raises the possibility of inflation elevating above the current level. Noteworthy increases in wages and inflation over the next few years represent opposing financial forces for determining future hotel cash flows.
Labor costs constitute up to nearly one-half of the total expense in U.
Because room rates are regularly reset, hotel management possesses a natural hedging instrument for battling inflation while coincidently countering the negative effects of increasing labor costs on hotel cash flows. How will these macroeconomic cross currents influence future hotel financial performance?
Employment appears to be nearing equilibrium given the current size of the labor force. Louis estimate that the natural rate of unemployment stands at 5. Bureau of Labor Statistics. Market and Regulated Wages Figure 1 charts the movement of the unemployment rate with average national hourly pay.
The annual percent change in wages has a decidedly inverse relationship to the national unemployment rate. The figure shows that during wages were increasing at an accelerating rate while the unemployment rate UER declined. The unusual stickiness of wage growth following the gradual decline in the unemployment rate during the recent economic recovery remains a topic of discussion among economists.
Federal Reserve economists Daly and Hobijn show that lower than expected wage growth is the result of the less than normal wage cuts during the recession.
Others argue that real wages are now growing at expected rates given the low inflation the U. Figure 1 shows a noticeable pickup to over six percent in nominal wage growth by year-end Another possible driver of nominal wage growth is political involvement in the U.
As indicated by the similar slopes of the linear trends in Figure 2, upward movements in the minimum wage despite occurring in steps at discrete points in time, have grown at virtually the same rate over the past several decades as market-determined wages; it appears that minimum wage laws follow the market.
It Matters How Workers Spend Wage Increases Changes in personal income resulting from changes in wages strongly influence consumer spending during normal periods, that is, when fear or uncertainty are not driving consumers to disproportionately save.
Figure 3 presents the movement of U. Wage growth and unemployment levels from Figure 1, when compared to the consumption growth rate in Figure 3, indicate that the more wage and salary growth exceeds the unemployment rate, the greater the growth in national consumption relative to saving.
National consumption growth is forecast to peak at 4. The takeaway being that the high marginal propensity to consume resulting from accelerating wage growth will likely impact nominal and real hotel financial performance in positive ways, given that the majority of hotel stays in the U.
This empirical artifact created a policy debate as to whether central government actions designed to raise the inflation rate may actually lower unemployment. Detailed analyses revealed that inflationary policies may have the intended effect in the short run, but not over an extended period as the labor market moved to the natural rate of unemployment.In the ongoing battle regarding the provision of affordable health care for employees, the strike on August 29th opened a new front for owners .
Labor Costs, Inflation and Hotel Profit Crosscurrents By Jack Corgel, Ph. D. and Ryan Speed How the future profitability of U. S. hotels may be influenced by simultaneous improvement of labor market conditions and increasing inflation is the subject of this edition of Hotel Currents™.
The Economic Impacts and Benefits of Tourism in Australia a General Equilibrium Approach. THE ECONOMIC IMPACTS AND BENEFITS OF TOURISM IN AUSTRALIA Relative effects of interstate and overseas visitor expenditure _____ 22 APERSPECTIVE ON EVENT E THE ECONOMIC IMPACTS AND BENEFITS OF TOURISM IN AUSTRALIA.
If inflation suddenly started rising, in Australia or overseas, there could be knock on effects for Australian investors and retirees as prices increase quickly with no corresponding increase in income for anyone.
If inflation suddenly started rising, in Australia or overseas, there could be knock on effects for Australian investors and retirees as prices increase quickly with no corresponding increase in income for anyone. Inflation rate and hospitality industry prices are found to be integrated of order one with a nonzero mean, suggesting that the present level of prices can be composed as a sum of all the previous shocks to inflation and hospitality industry prices.