What Does an Increase in Business Travel Mean for the U.S. Economy?

A new report predicts a rise in U.S. business travel and argues this is a solid indicator of improving economy.

Jul 14, 2014 at 10:14AM

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A new report indicates that business travel -- and business travel spending -- is on the rise in the U.S. The organization behind the report, the Global Business Travel Association, says that the increase is a very reliable indicator that the overall economy is strengthening. 

Here is the logic, as explained by GBTA Executive Director and COO Michael W. McCormick: "Business travel spending in the U.S. supports 7.1 million jobs," he said in a press release. "We continue to see a correlation: growth in business travel is intrinsically linked to jobs development and ultimately growth in the U.S. economy."

In other words, the more business conferences and meetings that occur on the road, the more need there will be for workers in hotels, airports, restaurants, car rental agencies, etc. 


Source: GBTA BTI™ Outlook – United States 2014 Q2

A closer look at the numbers in the report lend credence to McCormick's claim. Business travel within the U.S. rose almost 3% since last year, with travel spending up 7.6%, to $71.2 billion, during the first quarter of 2014. Additionally, spending on U.S. business travel is projected to grow by $292.3 billion in 2014, a 6.8% increase from 2013. Anytime businesses pump hundreds of billions of dollars into the economy, a positive ripple effect can be expected. In this case, airlines, hotels, car rental agencies, and restaurants will all benefit, along with the travel websites that serve as intermediaries between travelers and their destinations. 

A boost for plastic
The increase in business travel will also be a windfall for credit card companies; all business expenses typically go on plastic so they can be accounted for after returning home. Tad Fordyce, senior VP and head of Global Commercial Solutions at Visa (NYSE:V), a sponsor of the report, said in the press release that he is encouraged by the upward trend present in the GBTA BTI, a proprietary index of business travel activity, which is now estimated to reach 134 in Q2 2014, up from 132 last quarter. 

"The expected growth outlined in the GBTA BTI means for exciting times not only in the business travel market but for our country's economy as well," Fordyce said in the release.


Source: GBTA BTI™ Outlook – United States 2014 Q2

But haven't execs been all gloom and doom?
On paper, the assertion that more business travel means the economy is strengthening seems to be a reasonable conclusion to reach, even though it's pretty much impossible to quantify what a 6.8% increase in travel spending and 2.3% increase in business trips will mean for the U.S economy.

But does the projected uptick in business travel actually serve as a reliable indicator of the U.S. economy's health? What about the recent reports by both Deloitte and the Business Roundtable that detail the fading optimism and growing pessimism in U.S. boardrooms regarding the U.S. economy? The Deloitte report shows that CFOs in the U.S. are 7% less optimistic about the economy in the coming year. Meanwhile, the Business Roundtable report shows that CEOs expect the economy to grow by 0.1% less than it did last year. How does that square with the rising GBTA BTI?

In the comfort zone
The fact is that CEOs and CFOs would not be signing off on an increase in the amount of trips taken by employees -- or approving bigger travel spending budgets -- if they saw storm clouds ahead. Despite the lack of enthusiasm expressed by the recently surveyed heads of major U.S. companies, they are green-lighting more business travel within their own companies. They must be comfortable enough with the short-term economic outlook.

More employees traveling means more deals are getting done, more training is taking place, and all of the economic benefits that follow in the wake of increased business travel can be counted on.

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Louis Battaglia has no position in any stocks mentioned. The Motley Fool recommends Visa. The Motley Fool owns shares of Visa. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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