SENTIMENT INDEX SURGES UPWARD

The composite Lodging Executives Sentiment Index (LESI) jumped more than five points last month to a 12-month high of 81.6. The Present Situation Index surged ahead to 81.6, a gain of 9.1 points, while the Future Situation Index rose just 1.6 to the same 81.6 reading.

An important corollary to the LESI is the Conference Board's Consumer Confidence Index, which slipped precipitously beginning in July of 2004. However, in December it showed a marked improvement to 102.3 (100 was the base set in 1985), up from 92.6 in November. Like the LESI index, the Conference Board's Index is a composite of its Present Situation Index — which rose from 96.3 to 105.9 — and the Expectations Index which posted a 9.7-point rise to 99.9.

The LESI, created in June 2000, is a leading indicator based on opinions of lodging executives. A LESI index reading greater than 50 indicates that the industry is generally expanding and below 50, the lodging sector is generally declining. The distance from 50 indicates the strength of the expansion or decline of the industry.

The Present Situation Index reading of 81.6 shows business is still in an expansion mode, which has been the case since January of 2004 (50.0 is the break point between decline and expansion). Sixty-eight percent of responding LESI executives feel positive about future business conditions, while 26 percent sense that business conditions in the future will be “about the same.”

Lodging executives counter their Future Business Conditions optimism with The Reservations Expectations Index — currently on a three month slide — that slipped to 86.8, down from 90.0 two months ago. That said, 84 percent (up from 80 percent last month) of lodging executives say they expect room reservations to increase. On a potentially disturbing note, however, the number of respondents indicating an expected downturn in reservations over the next 12 months jumped from five to 10 percent.

LESI respondents also give feedback how they expect threats of terrorism will affect occupancy. Over the past two years, they reported a low of 27.9 and a high of 52.5; for the past two months, their responses have been steady at 50.0. This “wait-and-see” stand on the potential impact of terrorism on occupancy will be shaped in future months by both domestic and international developments. If international terrorism threats increase, one can expect a positive impact on U.S. occupancies if no acts are carried out within the U.S. Additionally, inbound tourism could be helped by the continued slide of the U.S. dollar against other major currencies. Since the beginning of the slide, the value of the U.S. dollar has dropped 27 percent.

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