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The 2022 travel season will save the economy from a recession

by Dissecting the Markets 3 months ago in investing
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While demand for durable goods has plunged, demand for services has surged

The 2022 travel season will save the economy from a recession
Photo by Tron Le on Unsplash

Disclaimer: This article is not financial advice. All content should be considered opinionated. We are not responsible for any gains and losses. Please talk to a financial advisor before making any investment decisions.

Currently, many investors are predicting a recession to happen in the near future. With high inflation, consumers are spending more on necessities than ever. In Q1 2022, GDP shrank 1.4%. The Cass Freight Index is seeing softness in the trucking sector. RH CEO Gary Friedman said in his earnings call that he sees the economy entering a recession.

Meanwhile, the TSA predict that this year will break records. To give perspective, the TSA is seeing the Summer 2022 travel season being bigger than the Summer 2019 travel season. Carnival saw its busiest booking week in April. United Airlines is offering more flights to Europe this summer compared to 2019. Hotel rates have surged to a record high. Altogether, the travel and leisure sector is seeing massive demand coming their way.

Even if consumer sentiment has hit an 11-year low, the fact that travel and leisure businesses are seeing huge demand for their services shows that consumers continue to spend despite the inflation issues that's plaguing society today.

Even if travel and tourism contributes 7.8% to US GDP, outside of spending on hotels, flights, and amusement parks, consumers are also spending for restaurants, taxis, and souvenirs. Communities that were once severely impacted by the pandemic are going to see a flood of business coming their way. With that, many communities will see their economic activity being revitalized and community members will see themselves becoming wealthier from the massive travel season.

The economy is currently seeing a transition from a pandemic economy to a normal economy. This can be seen when comparing Amazon's and Mastercard's earnings reports. While Amazon's e-commerce sales fell in Q1 2022, around the same time, Mastercard saw its customers splurging on travel plans. The transition will be painful but it will also contribute to growth in the US economy.

For those looking for a "Roaring 20's" comparison, let's revisit history.

Here's a chart of the stock market from 1915 to 1929:

Chart of the stock market from 1915 to 1929 (Source: A Wealth of Common Sense)

After reading the history of how America got to the Roaring 20s, the event that most resembles what the crowd thinks is the "The Depression of 1920-1921". In that economic depression, the government slashed fiscal spending by 20% to pay the war debt and the Federal Reserve raised interest rates.

In the present day, the Fed is hiking rates and the federal government is reducing its fiscal spending as many of the pandemic-era spending programs are ending. However, the federal government has ramped up defense spending after the Russian invasion of Ukraine as the Biden Administration looks to supply the Ukrainian army with a lot of arms. It's unsure whether the Biden Administration will look to cut fiscal spending in other areas of the federal budget.

While history does rhyme, it doesn't mean that we'll enter a recession in 2022 amid a busy travel season. Don't forget that many innovations have been made during the pandemic and that those innovations will make the world a better place for the foreseeable future. In the 1920s, the invention of radio, the washing machine, the television, etc. all propelled the economy higher as consumers looked to adopt them. Today, many are still looking to adopt electric vehicles, cryptocurrencies, and more!

Back to the busy travel season, once consumers start taking their flights to their vacation destinations, they're going to splurge there. Consumers will feel wealthier as they can finally take the vacation that they've always wanted to take. Businesses hit hardest by the pandemic are going to see themselves having so much money that they don't know what to do with it. The economy will fire on all cylinders as durable goods will be needed to maintain huge numbers of guest.

Before making a call for a recession in 2022, don't forget that 2022 is going to be home to the busiest travel season in history.

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About the author

Dissecting the Markets

My views on markets, investment strategies, perspectives on events, etc. usually differ from the mainstream consensus.

*All views expressed in my articles are my own and should be considered opinionated

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