Q3 2024 GDP and September 2024 Personal Consumption Expenditures (PCE) were released this week, along with a bevy of earnings updates from entertainment, leisure, and travel companies. As such, it was an opportune time to update on our "fun" versus "stuff" thesis--that 2024 would be a year where the increase in spending on "fun" (including movies, bars, restaurants, travel, etc.) would be more even with the increase in spending on "stuff" (clothing, furniture, sporting goods, etc.). This being after two years of distortions where the increase in spending on stuff dominated fun in 2022 and where the increase in fun denominated stuff in 2023. 2024 is also the year where the Fed and weaker consumer demand whopped inflation.
We show all of this in the table below. The increase in personal consumption overall is less this year (+$681B versus +$1,062B) due to less inflation. The YTD annualized pace of $340B in real terms (which removes inflation) is only modestly less (-$89B) than the past two year’s average increase of $426B, or a relatively immaterial 6 basis points slower to total PCE ($89B/$16,112B). Looking at the “other” category, which is effectively essentials, the increase this year (+$255B) in real terms is slightly ahead of the prior two. The increase reflects healthcare, transportation, and other categories that were less dominant earlier. Their increase in 2024 has crowded out increases in discretionary spending. Lastly, that the increased spending for stuff ($58B) in real dollars is more than in nominal dollars ($50B) reflects deflation in the category. Less inflation in fun is also driving the dollar expenditure slowdown. This years’ slowdown in spending on more-fun from +$151B to +$38B, or -$113B, is half less inflation and half “less, more fun.”
As we’ve shared previously, consumers are spending this year, but they are more selective and spend where they can get more for their dollar. One example of this is the Federal Reserve Bank of Atlanta reported in the October Beige Book, “Contacts reported a continued trend of declining discretionary spending and trading down to lower-priced goods and services. Though this was still mostly concentrated among lower-income groups, middle- to high-income consumers, while continuing to spend, became more selective with purchases and sought discounts.” The San Francisco District reported, “Consumers continued to seek discounts and were reluctant to pay full price for nonessential goods.” Another example of this is consumers’ recent preference for cruises over destination theme parks like Universal Studios. And another example comes from Booking Holdings (Hotels.com and formerly Priceline) which reported that hotel booked rates were flat year-over-year versus being up +9% at this time last year
Theme Parks
Comcast reported Q3 2024 results, where domestic revenue to its theme parks (Universal) decreased by around -10% (which is consistent with our preview). However, what our preview showed was a strong improvement going into the end of the summer season which we again show below. Previously, we've noted that management has attributed this year’s decline to unusually strong results in 2022-2023, families deferring ahead of the new park in Orlando (Epic Universe), and market share loss to cruise. Hollywood is also comping a very strong period last year when its new Super Mario attraction was newly opened (early 2023). With the full summer season played out, one can see that the drag from the Mario comparison lessened going into the fall.
On its earnings call, Comcast CEO Mike Cavanagh said on Epic Universe, “We recently announced that Epic will open on May 22, 2025 and have also started to activate our sales and marketing plans, including the sale of vacation packages that provide the opportunity to visit Epic, which we expect to be in very high demand. This park will offer a level of immersion that is unmatched, transporting guests to expansive worlds featuring more than 50 awe-inspiring attractions, entertainment, dining and shopping experiences. Once Epic opens, Universal Orlando will be transformed into a weeks' long vacation, offering 4 theme parks, a city walk, dining, retail and entertainment district and 11 hotels. Epic will build on everything we've excelled at in the present and in the past and make it even better by infusing iconic storytelling with cutting-edge technology in five fully themed worlds, each one telling a fantastic story based on world-renowned movies and literature such as Dark Universe, which capitalizes on our Universal Monster franchise; Isle of Berk, which brings DreamWorks' How to Train Your Dragon to life; there is the Wizarding World of Harry Potter Ministry of Magic as well as Super Nintendo World. And all of these are connected by Celestial Park, a world in and of itself. We could not be more excited for what's ahead of us with Epic and our entire Destinations & Experiences business.”
Not said there is those presales will likely further weigh on near-term demand and early 2025. We fear that that those presales and the opportunity to visit the newly opened Epic may also cause families to also defer traveling to Disney and SeaWorld as they narrow their spending on the theme park category, in favor of other experiences and types of fun (i.e., “becoming more selective”). The winter and spring holiday periods will provide the tell, but as shown below, Disney has experienced a decline in September and October. (Disney’s management warned of a slowdown in early August and so they must have seen that in their forward bookings at the time.) Obviously, the hurricanes are a large part of the decline in Florida in Late September and early October, but the softness is also evident at its Anaheim parks. (As a reminder, Placer doesn’t pick up international visitors which are likely somewhat of an offset to the lower domestic visitation.)
Cruise Lines
In contrast to softer traffic at theme parks, cruise is booming. Royal Caribbean reported a 15% increase in passengers, +21% in U.S. ticketing revenue, +5% in on-board spend per passenger, and +26% in revenue for cruises in the U.S., Caribbean, and Mexico. Carnival Cruise and Norwegian Cruise Line also reported very strong results. Shown in the chart below is visits to Royal Caribbean’s Fort Lauderdale terminal.
As is clear, demand for its itineraries are robust, partially due to their affordability, with especially multi-year compounding demand for its Perfect Day at CocoCay cruise. (Royal’s own “private” island.) A three-night cruise on Liberty of the Seas to the Bahamas starts at $350 per person. A six-night cruise on Oasis of the Seas starts at $640. Royal is planning more “island paradise” ahead with Royal Beach Club Paradise Island opening in 2025, Royal Beach Club in Cozumel opening in 2026, and Perfect Day Mexico in 2027.
On its earnings call, Royal Caribbean CEO Jason Liberty said, “Third quarter results exceeded our expectations due to strong close-in demand at higher prices on all of our key itineraries, coupled with continued strength in onboard revenue. As a result, net yields...were 110 basis points above our guidance...We are increasing full year yield growth expectations to 10.8% to 11.3%, as strong demand for our experiences across itineraries is translating into higher load factors, stronger pricing and continued growth in onboard revenue...We continue to see a very positive sentiment from our customer in a macro environment that favors growing demand for experiences and vacations. American households are wealthier than ever with continued wage growth and low unemployment driving strong consumer spending. Spend on leisure has grown a lot faster than most other spend categories over the past 12 months, with spend on travel increasing at a faster pace than other leisure categories. Our research suggests that this trend will continue over the next 12 months, with leisure travel spending growing by more than any other leisure category. Millennials, families and active cruisers are all over-indexing on both leisure travel and specifically cruise travel. Cruise remains an attractive value proposition and cruise purchase intent remains high.”
Vegas
Caesars and MGM also reported Q3 results this past week, with Vegas being relatively stable and the regional markets mixed. (Caesars’ regional business is being impacted more from weaker consumer spend and increased competition.) Looking at just Caesars Palace on the Strip, visits are down on most nights, but particularly Saturdays.
Moreover, the decline is from out-of-state visitors (as shown in the distance traveled table below), but from regions other than SoCal as visitors from the SoCal region are up year-over-year.
Not surprisingly, it was the less-affluent that were down, as shown in the table below. However, hours of visitation were down similarly between the more-affluent and less-affluent.
Per their reported results, hotel room rate was down -4% with rooms booked roughly even year-over-year. Table betting was down -14%; obviously there is a connection between the amount bet in the quarter at the casino and hours spent in the casino. MGM reported similar trends, but betting was down less and occupancy and rate were higher. MGM benefits from more high-end properties, notably the Bellagio and Aria and its Marriott partnership. MGM CEO Bill Hornbuckle said on the partnership, “We're probably pacing 20% above our own expectation for the year.”
