Economic perfect storm hitting the mountains
Vail, CO, Colorado
Economic storm clouds have been gathering these past months. The related headwinds have been apparent nationally for some time but are now showing up in our mountain travel industry as well. The Mountain Travel Monitor is designed to help track the situation.
Nationally, Consumer Confidence, a national indicator of consumer’s economic confidence, plunged 13.4 percent. The Consumer Price Index of what consumers pay, increased 1 percent and the Travel Price Index of what consumers pay for travel, rose 1.5 percent, faster than overall prices. These indicators are all negative.
A “perfect storm” ” made popular by a book/movie of the same name ” occurs when weather patterns from several storms converge, feeding off of each other and compounding the resulting impact. This same metaphor may apply to the convergence of several economic storms and help explain the underlying drivers:
What first appeared as a sub-prime loan problem, developed into a housing-led recession and is now moving into commercial markets, construction and real estate industries. Of more fundamental concern is the impact on our financial markets and banking system. Even the federally chartered institutions (Freddie Mac and Fannie May), created during the great depression of the 1930s are now themselves in line for federal bailouts.
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Rising crude oil prices broke historical highs at $70 per barrel shortly after the start of the subprime credit crunch and have now doubled to more than $140 and related gas prices are moving toward $5 per gallon with no immediate signs of falling back. The result is crippling the airline industry and changing the way we use and purchase automobiles.
This further affects the economy in general, and has a direct impact on travel and a much broader affect on everything that needs to move from point A to point B ” driving prices up across the board and taking money out of our pockets in the process.
A unique chain of events started with 9/11, then included two wars, Hurricane Katrina, and now the mortgage bailouts, resulting in frequent federal intervention and pumping money into the marketplace in hopes of subsidizing a recovery. The result is a drastic spike in inflation, now at a 29-year high, and is devaluing the U.S. dollar to what some are now calling the “American peso” and making everything, including oil and gas, even more expensive.
So a vicious cycle has been created; higher prices mean things costs more, our money is worth less, and the credit markets are no longer available to lend us more money. Together, this earns the “perfect storm” metaphor.
But there’s hope
So are we pessimistic, despondent even? Not so much. Certainly some tough times are ahead, especially in the short term, but from an economic cycle point of view, it was overdue and is a pre-cursor to the solid market on the other side of the storm. It has been long-since established as a fundamental tenet of economics, that markets are cyclical in nature and as such are self-correcting.
The credit crunch was preceded by a credit glut. The housing recession came after an unsustainable boom in housing in which many of us participated.
Fuels costs have been lower in the U.S. than most anywhere else since the 1970s. The Dot com bubble burst only after a monumental run. We’ve enjoyed the upticks and are now experience the other side of the inevitable cycle. These corrections are less disruptive when they come in smaller, shorter cycles, rather than larger, longer and more drastic cycles, so, in a strange way, we are better off in the long run if we just get it over with.
In fact there may be some good news, at least for those of you who think we are living in an unsustainable manner. People don’t change their behavior in any substantial way unless there is a huge opportunity or great crisis.
Economist Paul Romer once said, “a crisis is a terrible thing to waste,” and this perfect storm may represent just such a crisis, compelling us into doing the very things that may help insure our longer term well being. For many Americans, these would be revolutionary changes that will also reduce our dependency on carbon fuels, shift our reliance away from foreign oil and reduce greenhouse gasses enough to at least forestall global warming.
So, maybe there is a sliver lining. Maybe this perfect storm will even turn out to prompt good things in the long run.
Ralf Garrison is the director of MTRIP LLC, a company that evaluates trends in the mountan tourism industry.