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Merck & Co Inc
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Louise Befumo’s four motels along the New Jersey coast would normally be packed at this time of year. “When you have a heat wave like this, people should be running to the shore,” says Befumo, who has been in the motel business in New Jersey since 1972. “Still, we don’t fill up. A lot of people have gone from having secure incomes to not being sure about their jobs.” This summer Befumo hasn’t lit the “No Vacancy” sign even once during the week.
From the Jersey Shore to Mackinaw City on Lake Michigan to Gatlinburg, Tenn., and Ocean Shores, Wash., businesses that depend on middle-class vacationers are suffering. With unemployment stalled above 9 percent and companies including Merck (MRK), Lockheed Martin (LMT), and Cisco Systems (CSCO) announcing layoffs, occupancy at economy hotels and motels is off from pre-recession peaks. Attendance is down at national parks, including Yellowstone and Mount Rushmore. “There’s a lot of misery among middle-class families with incomes between $40,000 and $85,000,” says Chris G. Christopher Jr., an economist at forecaster IHS. “Discretionary spending for things like taking a vacation aren’t top of the list.”
Unemployment for leisure and hospitality workers in June was 10.9 percent, higher than the 9.2 percent national average, and second only to construction workers, according to the U.S. Bureau of Labor Statistics. June occupancy levels at economy motels—those charging an average nightly rate of $52—was 61 percent, says Smith Travel Research. It was 66 percent in 2007. One sign people are skipping vacation: Average gasoline demand for the four weeks ending July 15 fell 1.3 percent, the 18th consecutive drop for the average this year, according to MasterCard.
The village of Mackinaw City, situated where Michigan’s lower and upper peninsulas connect by bridge, typically swells from about 900 people in the winter to an average of 6,000 overnight visitors in the summer, says village manager Jeffery B. Lawson. This year seems different. “I’ve never seen a season as bad as this in 23 years,” says Richard Loch, who owns the Beachcomber Motel on the Water. Seven of nearly 60 motels have failed, he says. Unemployment in Emmet County, where the village is located, was 11.1 percent in June, higher than the state average of 10.2 percent. “People are calling to cancel their reservations because they lost their jobs or are losing their homes,” says Loch, who charges $69 to $89 a night for a room. Occupancy is down 40 percent from five years ago, when he used to hire as many as three maids a day. Now he often calls in just one.
In New Jersey, tourism spending may not return to 2007 levels of $39 billion until 2012, according to a report for the state by Vantage Strategy, a consulting firm. Midway through the July 15 to Aug. 15 peak season, occupancy at Befumo’s motels is running about 65 percent, compared with 90 percent five years ago, she says. Her sales may fall as much as $100,000 to $200,000 per hotel this year. “We just have to eat the losses and hope it gets better,” she says.
When Americans do vacation, they are being frugal, says Steve Linde, general manager of the Kampgrounds of America location outside Yellowstone. Two items selling better this year at his convenience store are charcoal and wood: Campers cook instead of dining at the camp restaurant, he says. Sales at the camp’s store, souvenir shop, and restaurant may fall by more than a third this summer. “I’m seeing people order a hamburger and split it in half to save money,” says Linde. “I hadn’t really seen that before.
The bottom line: Occupancy rates were down five percentage points in June from pre-recession levels at hotels and motels catering to the middle class.