The unofficial US kickoff of Summer – Memorial Day weekend – in just over a week will offer a useful look at Americans’ current propensity to spend (i.e. travel) and therefore how fast the domestic economy can rebound. Three datapoints to frame this discussion:
#1: AAA forecasts a large pickup in Americans traveling this Memorial Day holiday weekend versus last year, but still fewer than pre-pandemic levels in 2019. Here are the main highlights from their analysis and other data sources we monitor:
- AAA expects 37.1 million people to travel at least 50 miles from home, up 60 percent from the record low of 23.1 million in 2020 back to the start of the series in 2000. That’s still almost 6 million or 13.3 percent fewer travelers than in 2019.
- The association’s “booking data reveals that domestic travel and road trips remain the biggest drivers of travel recovery in the near term… More than 9 in 10 Memorial Day travelers will drive to their destinations, as many Americans continue to substitute road trips for travel via planes, trains and other modes of transportation.”
For example, 34.4 million Americans plan on taking Memorial Day road trips, up 52.4 pct y/y but down 8.7 pct from 2019. Nearly 2.5 million Americans will also take an airplane, almost +578 pct versus 2020 but still down 23.4 pct versus 2019.
- AAA also expects gas prices to be the most expensive since 2014 “with the national average possibly more expensive than $3/gallon.”
#2: US gasoline demand – which we use as a proxy for general economic activity – also remains below pre-pandemic levels at this time in 2019. Consider:
- The chart below is from the US Energy Information Agency, which shows the 4-week average of daily American gasoline demand in millions of barrels/day for June 2019-June 2020 (top brown line) versus June 2020 through the first half of this month (bottom blue line).
- Gasoline demand went through a stabilization period at the beginning of this year, turned higher in March, but has flattened again of late.
- Gasoline demand is still currently down 5.5 percent versus the comp to 2019.
#3: TSA checkpoint travel numbers continue to rise each month of this year, but they still significantly lag 2019’s levels amid a dearth of international flights due to restrictions and as domestic air travel only slowly recovers. For example, here are the monthly averages for the TSA checkpoint travel numbers from January through yesterday of this month:
- January: 761k/day
- February: 873k/day
- March: 1.2 million/day
- April: 1.4 million/day
- May so far: 1.5 million/day
Those numbers are directionally positive, but the monthly growth rates have slowed the past two months. Of course, Memorial Day weekend travel could boost this month’s figure. Thus far, however, May’s average TSA checkpoint travel numbers are down 36 pct through yesterday (19th) versus the same timeframe in May 2019. April’s average figure was also down 41 percent compared to 2019.
Pulling all of this data together, here are our investment takeaways:
#1: Even with the wide rollout of vaccinations and pent-up demand for travel, everything from gasoline usage to TSA checkpoint travel counts does show steady improvement but still have a ways to go before getting back to pre-pandemic levels. AAA’s expectations for Memorial Day travel also fit this narrative of a solid rebound from broad shutdowns in 2020, but not yet as large of a snapback as many anticipated.
#2: As much as people saved over the last year and want to take trips, there’s a host of reasons Americans may only slowly venture back into traveling away from home. For example, there are still 7.6 million fewer employed Americans compared to February 2020. Some people also remain cautious amid new virus variants, business restrictions and safety protocols. Lastly, the US has undergone a massive home upgrade cycle in the last year, and many consumers may want to enjoy the fruits of their labor/purchases by staying close to home and socializing with friends in their backyards to celebrate Memorial Day.
#3: On the plus side, people not rushing to spend their savings through travel could contribute to a more sustainable and longer US economic recovery. On the downside, the broader US equity market has tread water since early April, so this may not be the news investors want to hear. The shape of the US economic recovery will depend on how quickly consumers spend their savings and markets want to see that drive corporate earnings (the more, the better obviously).
Americans’ inclination to travel as Summer begins is a useful measure for what they may decide to do over the balance of this year. So far, all our recent work shows Americans are still happy socializing at/near home, going out to nearby restaurants and taking local trips. The big budget destinations, such as taking the family to Disney, are not yet seeing as much interest as these less expensive options.
In sum, we still expect the US economy and travel industry to make a full recovery, but the data so far says it is happening gradually as opposed to early expectations of a V bottom.