A new article suggests that the correlation between GDP and lodging demand in the U.S. has weakened substantially during the past decade. However, a significant correlation remains between Gross Private Domestic Investment (GPDI), a component of GDP, and lodging demand in the U.S.
Although GDP was once thought to be among the best indicators of lodging demand, the correlation between GDP and lodging demand has diminished substantially during the past two business cycles. In contrast, a relatively more significant correlation between lodging demand and GPDI has remained in effect historically, including the period covering the most recent business cycles.
GDP is often used as a broad proxy for overall economic growth in the country. Government analysts and private-sector economists frequently publish forecasts of GDP in the U.S. which are readily accessible. To the extent that these forecasts are reliable, they may serve as indicators of future trends in lodging demand.
Using a regression formula, the authors tested the correlation between lodging demand and GPDI. For the period between 1987 and 2009, using GPDI as the independent variable produces an R2 value of 0.91, suggesting a highly significant relationship between GPDI and lodging demand over this period.
The practice of using GDP forecasts as an indicator of future lodging demand growth could become less relevant, especially during periods of significant fiscal stimulus or rapid changes in consumer sentiment.