With the welcome arrival of fall, it’s a great time of year to reflect on just what kind of year we’ve had in our vibrant visitor economy and what potential indicators we should be weighing most heavily as we collectively peer around the calendar corner into next year.
For some brief context on the year to date, it’s worth highlighting three broad trends that continue to define our regional destination as a whole:
- A well-predicted recession has yet to materialize; consumers, for the most part, continue to be remarkably resilient in the face of increasing economic headwinds. Locally, this has translated into another strong summer for the greater Outer Banks visitor economy.
- While that’s a celebratory note, economic data also suggests there is a limit to economic resilience with not much clarity available, by recent comparison, on what kind of season we’ll have next year in terms of either overall visitation and consumer spending; in fact, anecdotal comments seem to suggest a commercial highpoint somewhere the second half of 2021. While recent forward-looking trends suggest that pricing power has some staying power, they also suggest that a reversion to more traditional booking and vacation patterns is underway. In short, we’re on the other side of an inflection point. In addition, a recession remains a distinct possibility as the corresponding forces of both lift and drag affect the wings of commerce.
- Looking into the fourth quarter of this year, the strategic question is one of trend and telemetry–where will those trend lines go in terms of market impact? In other words, will those trends hold true through next year or will they continue to shift in the coming months? And, most importantly, what does that mean for our local economy?
Let’s unpack that question using three mental models; we’ll call them a best case, a base case, and a stress case.
- We’ll define a best case, from a regional revenue perspective, of a revenue average of the record years 2020, 2021, and 2022.
- We’ll define a base case as the more traditional–and still good–regional revenue averages of our previous record years of 2017, 2018, and 2019.
- And we’ll lastly define a stress case as something like the powerful volatility of the 2008 vacation season; one that ended relatively well as measured by annual occupancy amounts, but saw vast fluctuations in real estate multiples that led to commercial disasters in a wide array of adjacent industries.
Businesses, in short, that were built for only a best-or-base case had a hard time getting through the stress case.
In short, current economic indicators suggest that we are transitioning from a recent best case environment to one of the more traditional and base case booking patterns.
Yes, rates are rising but they’re still pretty good historically–they are only high as measured over the last ten years and remain among the best over the last 50 years.
Overall, the consumer remains in pretty good shape, as compared to before the pandemic, and travel demand continues to be vibrant although there is undoubtedly a limit in terms of price increases; we seldom know what they are until after the market corrects us.
In summary, it makes sense at the moment to suggest that we’re seeing a reversion to more traditional (when to spend) regional Outer Banks spending patterns although at higher price points.
In economic jargon, that means that perhaps 2024 sees a smaller visitor market but one willing to still support profitable margins where a good experience is available.
Risks, of course, include our labor force and related housing, but this year is a good proxy for what’s possible given our structural limitations around our workforce.
On a workforce note, it’s worth pointing out that our regional economy at the moment is remarkably dependent on foreign-born labor to maintain our service economy production.
Strategy, in other words, is bad at predictions. Just about everyone, for example, predicted a recession this year and the American consumer just didn’t listen to them.
Strategy is better, when done well, at assessing probabilities and planning. It makes sense to think that next year might look a lot more like 2019.
Let’s keep those stress cases in mind, and work now to avoid any resultant contagions in the years to come.
WOBX Publisher Clark Twiddy is the author of Outer Banks Visionaries: Building North Carolina’s Oceanfront which is now available at local bookstores and online. This is his second book about the Outer Banks. “Sound Strategy”, a weekly commentary from Twiddy, features issues, ideas and information focused on our mission statement of “Covering the Business News of the Greater Outer Banks”.