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Economic Update: Leisure and Hospitality

The Covid-19 pandemic brought about the most destructive job losses since the Great Depression. Job losses were heavily concentrated in manufacturing, healthcare, and leisure and hospitality. Last month, this column documented the state of manufacturing. Today, we look at leisure and hospitality.

Leisure and hospitality suffered the largest amount of job losses, both locally and nationally. The economic restrictions required many establishments in the leisure and hospitality sector to either shut down completely or experience a drastic reduction in revenues. Some establishments were able to pivot to online ordering and curbside pickups, but in many cases, this was not close to matching revenue levels in the pre-pandemic environment. Some firms ended up closing altogether, and others closed indefinitely.

The leisure and hospitality supersector consists of two industries: arts, entertainment, and recreation, and accommodation and food services. The sector is seasonal, with Louisville Metro employment peaking in July, and usually hitting a trough in December or January. Taking seasonality into consideration, employment in the leisure and hospitality sector is running about 15,000 to 18,000 jobs below pre-pandemic levels. These numbers are quite substantial when you consider job losses in prior recessions (the Great Recession saw just about a flat change in leisure and hospitality jobs), but a considerable improvement from the 35,000 total losses experienced last year. Overall job losses are running approximately at 36,000 compared to last year. So leisure and hospitality makes up close to 50% of total job losses.

Arts, entertainment, and recreation is down approximately 1,600 jobs (a 17% decline) in January compared to last year. In the depth of the pandemic, jobs were down approximately 7,000 jobs (a 62% decline from the previous year). The industry is quite broad, including casinos, exercise trainers, museums, ticket takers, dancers and choreographers, and musicians and singers, to name a few.

The largest industry is accommodation and food services. This includes motels and hotels and food and drinking places. In Louisville Metro, food and drinking places is the largest subsector with respect to employment. Food and drinking places employment totaled approximately 40,500 in January 2021 (down 23% from previous year), compared to 52,600 in January 2020. At the depth of the pandemic, food and drinking places were down 24,000 jobs, equivalent to a 45% reduction.

In the five counties of Southern Indiana, approximately 10,000 people were employed by food and drinking places in the first quarter of 2020; 726 were employed by accommodation. Fast forward to the 3rd quarter of 2020 (the most recent available data at the county level), we observe that 9,300 were employed by food and drinking places (a 12% decline from the previous year), and 575 by accommodation (a 23% decline from the previous year). Overall, the five counties are down 3,600 jobs 2020 Q3, compared to 2019 Q3, with leisure and hospitality making up 41% of overall job losses.

What does all this mean?

In a nutshell, the sector has made considerable progress since last April. Obviously, challenges remain, and this varies by the segment of the market an establishment serves. If an establishment relies primarily on local customers, or regional travelers, everything may be back to normal. If an establishment relies on conventions, concerts, and sporting events, the picture is entirely different.

The Year Ahead

The leisure and hospitality sector should expect to see strong growth this year. The roll out of the vaccines, continued relaxation of pandemic restrictions, and significant pent-up demand for travel and leisure experiences will all combine to produce a decent year for 2021. This does not suggest that hurdles do not remain. Until conventions, sporting events, and concerts return, some establishments will see greater obstacles than others. Labor shortages, for various reasons, can place headwinds to some of this growth (if a server is not available for a table, that table does not generate revenue).

Consumers will have the cash to spend. Additional stimulus and high levels of household savings will give consumers the resources to pursue leisure and hospitality. One of the reasons I believe Louisville Metro will recover total job losses late this year (or at least come close) is linked to the progress that will be made in leisure and hospitality.

Data sources: Indiana data: STATS Indiana Quarterly Census of Employment and Wages. Louisville Metro data on leisure and hospitality employment: FactSet. Louisville arts, entertainment and recreation and accommodation and food services: Bureau of Labor Statistics

Submitted by

By Dr. Uric Dufrene, Sanders Chair in Business and Professor of Finance, Indiana University Southeast

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Oct 5, 2021
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