Since September 11, Americans have discovered they can get along without many activities they formerly carried out regularly. The most obvious is air travel, especially abroad and on vacations, but also for business. Related to that is patronizing hotels and resorts instead of spending vacation and leisure times close to home. This discovery was initially inspired by fear of terrorism, but has since become motivated by other factors too.
The result has been an economically devastating slump in air travel and hotel and resort bookings, both here and abroad. Even local restaurants and theaters have suffered. That slump has been aggravated by the worldwide economic slowdown since 2000. Recently, these industries have been further depressed by the SARS epidemic in Asia, especially in Hong Kong and China, and by war in the Middle East.
On the other hand, businesses that cater to home and family activities have been booming. Home furnishings, gardening, outdoor recreation, home entertainment systems, appliances, and even cooking programs on television are doing well. People are “nesting”: focusing on their close-to-home lives rather than on other uses of disposable incomes. That is one reason why home sales have soared – also aided by low interest rates and a flight of capital from the stock market. This new focus on one’s personal life also helps explain why so many hotels and resorts have opened health, beauty, and fitness spas to attract new business in this environment.
When the U.S. economy starts recovering strongly, airlines, travel businesses, meeting planners, and hotels and resorts are hoping their usual activities will return to something like pre-9-11 levels. But I seriously doubt this will happen. The truth is that Americans previously were preoccupied with activities that are in reality easily dispensed with. Vacation travel to exotic destinations is the most obvious example. After all, there are plenty of interesting places to visit within the United States, and many can be reached by car at less expense than by air. In the same way, foreign tourists can just as easily stay in their own countries as visit America. Tourism is the single largest industry in the world; so when it suffers a major decline, economies the world over are hurt. Some regions like Hawaii and the Caribbean are heavily dependent on tourism, and thus especially vulnerable. This is one way in which terrorism has already seriously injured myriad economies all over the world.
Lots of other “normal” activities are also dispensable. Many business trips can be replaced by phone calls, e-mails, or video conferences. Whole industries are dominated by the sale of goods and services that can hardly be considered necessities. A lot of goods, gadgets, fashion items, and trinkets that people buy during periods of prosperity can easily be done without. People can also hold onto their existing cars, clothes, computers, televisions, and appliances a little longer than they have in the past, thereby reducing annual sales levels in those industries. Billions of dollars are spent each year in advertising aimed at persuading people they ought to buy something new right now that they could easily postpone indefinitely, or just forget about.
As a result, the world economy is vulnerable to prolonged slumps in specific activities that are highly dispensable. Moreover, once people have discovered that they can do without certain activities, there is a strong chance that many will not resume the former levels of spending, even when prosperity returns. I believe that is the situation facing airlines and the hospitality business, and many producers of luxury goods and services. Hence investors contemplating putting money into those businesses should be extremely cautious. They surely do not want to become additional victims of the huge negative impact that terrorism has already had on the world’s prosperity.