Preston Robert Tisch Center for Hospitality,
Tourism, and Sports Management
School of Continuing and
Professional Studies
New York U i
N Y k University
it
The U S Economy
U.S. Economy,
Stock Market,
and th
d the
U.S. Lodging Industry
g g y
The Second in a Series of
NYU Tisch Center Economic Briefings
January 30, 2009

Agenda
g
• W l
Welcome and I t d ti
d Introduction
- Lalia Rach, Ed.D., Divisional Dean
• Overviews with Analyses
- Bjorn Hanson, Ph.D., C ca Associate Professor
jo a so , , Clinical ssoc a e o esso
• Next Steps
- Additional Information and Resources

Lalia Rach, Ed.D.
L li R h Ed D
Divisional Dean
NYU Tisch Center

Bjorn Hanson, Ph.D.
Clinical Associate Professor
NYU Tisch Center

Overview
1. Recent U.S. Lodging Trends
2. Why Have The Economy And Stock Market
Declined?
3. U.S. Recessions
4.
4 Government Actions and Implications
5. Lodging Industry Issues
6. Forecasts
7. Summary
y

Recent U S Lodging Trends
ece t U.S. odg g e ds

Recent U.S. Lodging Trends
g g
140 ADR
130 RevPAR
120 Supply
110 ` Demand
Occupancy
100
90
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
* Forecast
Source: Smith Travel Research and PricewaterhouseCoopers

Recent U.S. Lodging Trends
• As of February 2009, there have been 16
consecutive months of occupancy decline
• 12 months following September 2001
• The longest p
g period since 1990 – 91 (18
(
months)

Why Have The Economy And
y y
Stock Market Declined?

Why Have The Economy And Stock
Market Declined?
1. Housing
g
• Interest rates affect affordability

In December 2008, the Federal Open Market
Committee (FOMC) lowered interest rates to
( )
their lowest ever
8%
7%
6%
5%
4%
3%
2%
1%
0%
Jan
J Jan
J Jan
J Jan
J Jan
J Jan
J Jan
J Jan
J Jan
J Jan
J Jan
J Jan
J Jan
J Jan
J Jan
J Jan
J Jan
J Jan
J
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: Federal Reserve Bank of New York

Why Have The Economy And Stock
Market Declined?
1. Housing
• Interest rates affect affordability
• Political, social, and economic
objectives

Why Have The Economy And Stock
Market Declined?
1.
1 Housing
• Interest rates affect affordability
• Political social and economic
Political, social,
objectives
2. Consumer Spending
• Borrowing / spending household wealth

Household Debt As A Percentage of
Disposable Household Income
(Percent of after-tax income)
10 Saving rate Debt/income (right) 140%
8 130%
6 120%
4 110%
2 100%
0 90%
-2 80%
1990 1993 1996 1999 2002 2005 2008
Source: Bureau of Economic Analysis and Federal Reserve

Why Have The Economy And Stock
Market Declined?
1. Housing
• Interest rates affect affordability
• Political, social, and economic objectives
2. Consumer Spending
• Borrowing / spending household wealth
• Oil / gasoline concerns

$0.00
$1.00
$2.00
$3 00
$3.00
$4.00
De
ec-80
De
ec-81
De
ec-82
De
ec-83
De
ec-84
De
ec-85
De
ec-86
Source: US Energy Information Administration
De
ec-87
De
ec-88
De
ec-89
De
ec-90
Unleaded Regular Price Per Gallon
De
ec-91
De
ec-92
De
ec-93
i
De
ec-94
De
ec-95
De
ec-96
Oil Prices
De
ec-97
per gallon
De
ec-98
Oil prices peaked i
De
ec-99
July 2008 at $4.09
k d in
De
ec-00
De
ec-01
De
ec-02
De
ec-03
De
ec-04
De
ec-05
De
ec-06
De
ec-07

Why Have The Economy And Stock
Market Declines?
1.
1 Housing
• Interest rates affect affordability
• Political, social, and economic objectives
2. Consumer Spending
• Borrowing / spending household wealth
g p g
• Oil / gasoline concerns
3.
3 Stock Market
• Capitalization and debt

Capitalization and Debt
Stock market capitalization as a percentage of GDP
220%
170%
120%
70%
20%
930
933
936
939
942
945
948
951
954
957
960
963
966
969
972
975
978
981
984
987
990
993
996
999
002
005
008
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
20
20
20
-30%
Source: Barron’s, Bureau of Economic Analysis

Why Have The Economy And Stock
Market Declined?
1. Housing
• Interest rates affect affordability
• Political, social, and economic objectives
2. Consumer Spending
• Borrowing / spending household wealth
• Oil / gasoline concerns
3. Stock Market
• Capitalization and debt
• Investment focus and techniques
– “Exotic” investments
– “Quants”, program trading
Quants
– Misunderstanding risk

Why Have The Economy And Stock
Market Declined?
1. Housing
• Interest rates affect affordability
• Political, social, and economic objectives
2. p
Consumer Spending g
• Borrowing / spending household wealth
• Oil / gasoline concerns
3. Stock Market
• Capitalization and debt
• Investment focus and techniques
– “Exotic” investments
Exotic
– “Quants”, program trading
– Misunderstanding risk
4. Public Company Growth Expectations
• 20 percent target growth

Why Have The Economy And Stock Market
Declined?
1. Housing
• Interest rates affect affordability
• Political social and economic objectives
Political, social,
2. Consumer Spending
• Borrowing / spending household wealth
• Oil / gasoline concerns
3. Stock Market
• Capitalization and debt
• Investment focus and techniques
– “Exotic” investments
– “Quants”, program trading
– Misunderstanding risk
4. Public Company Growth Expectations
• 20 percent target g
p g growth
5. Globalization

U.S. Recessions

National U.S. Recessions
Dates Duration
Aug. 1929 to March 1933 (Depression) 43 months
May 1937 to June 1938 13 months
Feb. 1945 to Oct. 1945 8 months
Nov. 1948 to Oct. 1949 11 months
July 1953 to May 1954 10 months
Aug. 1957 to April 1958 8 months
April 1960 to Feb 1961
Feb. 10 months
Dec. 1969 to Nov. 1970 11 months
Nov. 1973 to March 1975 16 months
Jan. 1980 to July 1980 6 months
July 1981 to Nov. 1982 16 months
July 1990 to March 1991 8 months
March 2001 to Nov. 2001 8 months
Source: National Bureau of Economic Research

19
929
19
932
19
935
19
938
19
941
19
944
19
948
19
951
19
954
Source: National Bureau of Economic Research
19
957
19
960
19
963
19
967
19
970
19
973
19
976
19
979
19
982
19
986
19
989
19
992
National U.S. Recessions
19
995
19
998
20
001
20
005
20
008

U.S. Recessions and Lodging Cycles
U.S. Recessions Months Lodging Cycles Months
Dec. 1969 to Nov. 1970 11 Feb. 1969 to Feb. 1971 24
Nov. 1973 to March 1975 16 Aug. 1974 to May 1975 9
Jan. 1980 to July 1980 6 Oct. 1979… -
July 1981 to Nov. 1982
y 16 … to May 1982
y 31
July 1990 to March 1991 8 Feb. 1990 to March 1991 13
March 2001 to Nov. 2001 8 Sept. 2000 to Sept. 2003 37
Source: Smith Travel Research and National Bureau of Economic Research

U.S. Recessions and Stock Market
Year Magnitude of Months of Months Until
Decline Decline Full Recovery
1929 to 1933 83% 34 151
(Depression)
1937 50% 13 58
1946 22% 6 35
1962 22% 6 10
1970 29% 19 9
1974 43% 21 21
1987 30% 3 18
2002 45% 25 40
2008 47% 13* ??
* To date.
Source: Center For Research In Security Prices (University of Chicago)

2008 Stock Market Performance
Index Performance
Dow Jones Industrial Average - 33.8 percent
S&P 500 - 38.5
Dow Jones Lodging Stock Index - 58.0

EBITDA Multiples – Lodging
16
14
12
10
8
6
4
2
0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: Bloomberg

Government Actions and
Implications

Government Actions and Implications
Government Actions
• Emergency Economic Stabilization Act of 2008
g y
(subject of our last NYU podcast)
• Creating (“printing”) $1.3 trillion of currency (so far)
– T l outstanding currency = $10.6 trillion
Total di $10 6 illi
Implications
• Possible lower confidence in the U.S. dollar
– slow deposits in the U.S.
– lower U.S. dollar
– increased costs for imported goods and services
– higher interest rates
• Possible high inflation
– more U S dollars relative to the value of goods and
U.S.
services

U.S. Deficits and Debt
Percentage of GDP
Budget Defcit / Surplus Public Debt
140%
120%
100%
80%
60%
40%
20%
0%
-20%
20%
1940 1944 1948 1952 1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008
Source: Time, Congressional Budget Office, Office of Management and Budget

Government Actions and Implications
Government Actions
•E
Emergency E
Economic St bili ti A t of 2008
i Stabilization Act f
(subject of our last NYU podcast)
• Creating (“printing”) $1 3 trillion of currency (so far)
$1.3
– Total outstanding currency = $10.6 trillion
Implications
• Possible lower confidence in the U.S. dollar
– slow deposits in the U.S.
– lower U S dollar
U.S.
– increased costs for imported goods and services
– higher interest rates
•P
Possible hi h i fl ti
ibl high inflation
– more U.S. dollars relative to the value of goods and
services

Lodging Industry Issues
g g y

Demand Elasticity and Correlation to
Real GDP
1987 value = 100
180
170
US Real GDP
160
150
140
130
120
110
100
87 88 89 90 91 92 93 94 95 96 97 98 99 '00 '01 '02 '03 '04 '05 '06 '07
Sources: Lodging demand – PricewaterhouseCoopers LLP based on Smith Travel Research data; Real GDP- U.S. Bureau of Economic Analysis;
Air travel demand - Air Transport Association.

Demand Elasticity and Correlation to
Real GDP
1987 value = 100
180
170
US Real GDP
160
150
140
130 Lodging Demand
120 (Room Nights Sold)
110
100
87 88 89 90 91 92 93 94 95 96 97 98 99 '00 '01 '02 '03 '04 '05 '06 '07
Sources: Lodging demand – PricewaterhouseCoopers LLP based on Smith Travel Research data; Real GDP- U.S. Bureau of Economic Analysis;
Air travel demand - Air Transport Association.

U.S. Lodging Demand
g g
Upscale
170
160
150 Midscale without F&B Luxury
140
130
120 Upper Upscale
110 `
Economy
100
90 Midscale with F&B
80
70
60
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: Smith Travel Research and PricewaterhouseCoopers

U.S. Lodging Rate
g g
150 Midscale without F&B
Luxury
L
140
Upscale
130
Upper Upscale
120 Midscale with F&B
` Economy
110
100
90
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: Smith Travel Research and PricewaterhouseCoopers

Long-Term U.S. Occupancy
g p y
Occupancy Percentage
O P t
95%
1946 Long-Term Trend 1987 to 2007 Trend
90% 92.5% 66.5% (79 Years) 62.7% (20 Years)
85%
80% 1979
72.2%
%
75%
1995
70% 64.8%
65%
60% 1991
1933 1971 61.9% 2002 2008
55% 50.6% 53.4% 59.0% 60.4%
50%
28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91 94 97 '00 '03 '06
Sources: PricewaterhouseCoopers LLP (1928 to 1986 and 2008), Smith Travel Research (1987 to 2007).

Long-Term Occupancy Levels and Profits
Income Before Income Taxes, Billions of Dollars Occupancy Percentage
$30 Aggregate Profits Occupancy 66%
$25
64%
$20
62%
$15
$10 60%
$5
58%
$0
6%
56%
($5)
($10) 54%
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Sources: Smith Travel Research
Note: STR change in method in 2002.

Forecasts

2009 U.S. Lodging RevPAR Forecasts
Source 2009 RevPAR Growth (%)
Morgan Stanley (4.5)
JP Morgan (5.8)
Smith Travel R
S ith T l Research
h (5.8)
(5 8)
PKF Research (7.8)
Deutsche Bank (9.7)
Goldman Sachs (
(10.0)
)
PricewaterhouseCoopers (11.2)
Source: Individual organizations and analyst reports

Summary
y

Summary
• Occupancy for 2009 - 56 to 59 %, (3.5 %), lowest
level since 1971
• Average daily rate (2.0 to 5.0 %), largest decline
ever
• Recompression of average daily rates
• R d
Reduced spending on capital expenditures
d di it l dit
• Lowest number of room starts since 1993
• Industry profits will decline, third period since 1980s

Sa e
Save The Date
e ate
31st Annual NYU International
Hospitality Industry Investment Conference
May 31 - June 2, 2009
Hosted by the New York University Preston Robert Tisch Center
for Hospitality, Tourism, and Sports Management
Location: The Waldorf=Astoria, New York City
Registration Opens Spring 2009
For additional information: www.nyu.edu/hospitalityconference

Tisch Center Programs
g
Undergraduate Degrees:
- B.S. in Hotel and Tourism Management
g
- B.S. in Sports Management and Leisure Studies
Graduate Degrees:
- M.S. Hospitality Industry Studies
- M.S. Tourism and Travel Management
- M.S. Sports B i
M S S t Business
Professional Certificates:
- Food and Beverage Operations
- Hotel Operations
- Meeting, Conference, and Event Management
For additional information: www.scps.nyu.edu/tischcenter

Additional Information
Preston Robert Tisch Center for Hospitality, Tourism, and Sports Management
• A copy of this PowerPoint® presentation is available at:
- http://www.scps.nyu.edu/tischpodcast
• Questions and comments may be sent to:
- tisch.center@nyu.edu