Randall Pullen

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SUMMARY

For 2017, WageWatch is forecasting a salary and wage increase for the lodging industry of

3.2%. This will be slightly higher than the 2016 actual wage increase of 3.1% as reported in

the WageWatch PeerMark™ Salary Survey for 2016. We forecast that wages for non-exempt

positions on average will increase by 3.5% and exempt positions on average will increase by

2.9%.

Our forecast of average wage increases for the lodging industry in 2017 is higher than the

responses received from participants in the WageWatch 2017 Budgeted Wage Survey for

hotel employees, conducted from January 7 to February 23, 2017. Lodging companies who

representing over 8,500 hotels with over 1.8 million rooms and 580,000 employees

participated in the survey this year. The survey results disclosed budgeted or planned wage

increases ranging from a low of 1.0% to a high of 6.0% with a median of 3.0% and a weighted

average of 3.0%.

RECAP OF LODGING WAGES FOR 2016

The U.S. Lodging industry in 2016 continued the trend which began in 2012 with strong

increases for hourly and salaried jobs. As reported by WageWatch in its PeerMark™ Wage

Survey of over 5,500 hotels in 2016, the overall average increase in pay was 3.1% as

compared to 3.4% for 2015. When broken down by exempt and non-exempt jobs reported in

the 2016 survey, exempt employees on average received a 2.2% increase over 2015 wages,

while non-exempt employees received a 3.8% increase compared to 2015. The following table

presents the wage increases for the period 2012 through 2016.

WAGE INCREASES 2012 2013 2014 2015 2016

All Positions 2.6% 2.7% 3.2% 3.4% 3.1%

Exempt Positions 2.8% 2.8% 4.2% 4.3% 2.2%

Non-Exempt Positions 2.5% 2.7% 2.9% 3.2% 3.8%

The table illustrates a trend of increasing wages every year for the lodging industry. This

finding is very positive when compared to the wage and salary increases for the private

business sector as reported by the U.S. Bureau of Labor Statistics of 2.1% in 2015 and 2.3%

in 2016. The lodging industry continues to be a leader in providing above average pay

increases for workers across the country.

The average percentage increase in wages for full service and select/focused service hotel

employees diverged in 2015, as focused service hotels caught up to the increases that full

service hotel employees received in 2013 and 2014. The 4.3% increase in wages for focused

service hotels this past year reflects the continuing strong financial performance of the

economy and midscale chains in the lodging industry. A comparison of full service and

focused service hotels for the past three years are presented in the following table.

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WAGE INCREASES 2013 2014 2015 2016

Full Service Hotels 2.8% 3.9% 2.8% 2.4%

Focused/Select Service Hotels 1.8% 2.7% 4.3% 4.2%

The following two tables present the average increases in wages for a sample of key positions

in focused and full service hotels for 2015.

SELECT/FOCUSED SERVICE HOTELS

2015

Increase

2016

Increase

Engineering Supervisor/Chief Engineer 11.0% 8.3%

Maintenance Technician II, Intermediate Level 4.8% 10.1%

Director, Housekeeping/Environmental Services 5.0% 4.0%

Housekeeper/ Environmental Services Attendant 5.1% 4.7%

Front Desk/Shift Supervisor 4.5% 3.9%

Front Desk Agent 3.3% 4.5%

Cook, Breakfast 2.0% 2.5%

Laundry Worker 1.6% 4.6%

FULL SERVICE HOTELS

2015

Increase

2016

Increase

Maintenance and Engineering Manager 6.4% 6.4%

Maintenance Technician II, Intermediate Level 4.8% 4.0%

Director of Food and Beverage 3.1% 4.2%

Cook, Breakfast 5.0% 1.6%

Steward/Dishwasher 6.0% 4.2%

Housekeeper/ Environmental Services Attendant 5.2% 2.8%

Laundry Supervisor 1.6% 2.6%

Laundry Worker 1.0% 2.5%

As the tables show, wages on average increased well above 3.0% for select/focused service

hotels, but were not as strong for full service hotels. Positions with average wage increases

below the industry average, and with a median lower than the position average, are an

indication of churning with higher turnover or promotions with new hires coming in at entry

level wages. Starting pay rates are typically 20% lower than the average pay rate for line

positions.

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ECONOMIC TRENDS AND IMPACT ON EMPLOYMENT AND WAGES

The year 2017 may be the year “animal spirits” reenter the U.S. economy. By this, I mean the

post 2016 election surge in business and consumer confidence in the U.S. economy has not

been seen at this level in over a decade. The American Institute of Certified Public Accounts

(Disclosure: the author is a member and participated in the survey) survey of business

executives conduct in February 2017 disclosed 69% were optimistic about the 2017 economy,

the highest level since 2004.

The polled executives indicated that much of their enthusiasm was propelled by their

expectation of lower corporate taxes and reduced regulation proposed by President Trump

and supported by a Republican Congress. Two-thirds of those polled say that the tax savings

will likely be deployed in capital expenses. Executives also reported a tightening of the labor

markets. “Availability of skilled personnel” is a top three concern for their companies.

Another strong indicator of the potential for strong growth is the survey conducted by the

National Federation of Independent Businesses of its 350,000 small business members. The

following chart shows that businesses planning to hire, post 2016 election, is back to the

prerecession levels of 2005 and 2006.

While this is a very upbeat message for the country, economists and policy makers are not so

certain that this will result in a stronger economy. They tend to view the bullish sentiment by

business leaders and the consumers as “irrational exuberance” and remain focused on their

mathematical models. However, the cornerstone of modern economic theory is based on much

of the work done by John Maynard Keynes in the early part of the last century. Interestingly,

he referred to animal spirits as “it is characteristic of human nature that a large proportion of

our positive activities depend on spontaneous optimism rather than on a mathematical

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expectation.” If the economy surges, economist may have to update their models and increase

the weight of animal spirits.

Whether the anticipated government deregulation, tax cuts and infrastructure projects come

to fruition and lead to a stronger economy, or gridlock continues in Washington D.C. and

extinguishes public optimism, should become clearer as 2017 progresses.

Since the financial crisis of 2008-09, the Federal Reserve Board has forecast real U.S. GDP

growth on average at 3.0% or higher. While real GDP growth has averaged only 2.2% a year

since the recover began in the third quarter of 2009. Overall, they have missed their forecasts

on average by over 30%. The Federal Reserve, as of January 2016, forecast real GDP growth

of only 2.1%. This was the first year since 2012 that their forecast was below 3.0%. Actual

real GDP for 2016 as reported by the U.S. Bureau of Economic Analysis this month was only

1.6%, which is consistent with our forecast for 2016 of between 1.4% and 1.7%.

As I have stated in prior years’ forecasts, the Federal Reserve has consistently overestimated

economic growth. The Federal Reserve’s forecasts are based on a number of variables in their

statistical model of which their control of interest rates in the financial markets, management

of the money supply and labor force employment are key variables. While interest rates and

the access to money are important variables; other factors, as John Maynard Keynes alluded

to in “The General Theory of Employment, Interest, and Money”, such as animal spirits play

a significant role in human undertakings. As previously noted, government regulations and

taxes also have had a serious impact on our economy. The following chart compares actual

real GDP to Forecast GDP by the Federal Reserve Board for each of the years from 2011

through 2016 and their forecast for 2017.

Source: Federal Reserve Board, U.S. Bureau of Economic Analysis

For 2017, the Federal Reserve is forecasting U.S. economic growth of 2.1%. Forecasts of real

GDP growth by leading economists for 2017 range from 2.0% to 2.5%. The Wall Street

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2011 2012 2013 2014 2015 2016 2017e

U.S. Real GDP

Actual Forecast

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Journal’s survey of 60 economists in January of 2017 showed a range of 1.8% to 3.1% with

an average of 2.4%. For 2017, we agree with the Federal Reserve’s forecast of 2.1%. This

forecast could be conservative as the WSJ survey of economists disclosed a significant

amount of dispersion in their survey and a strong possibility of a higher rate of growth.

In summary, the first half of 2017 economic growth will be driven by the optimism expressed

by businesses and consumers as reported by many publications in the last couple of months.

As the year progresses, the actions taken by Congress and the President may determine

whether the economy continues in the second half of the year on an upward path driven by

government deregulation, lower corporate taxes and popular exuberance.

ECONOMIC IMPACT ON LODGING EMPLOYMENT AND WAGES

For the labor force in the U.S., the strong optimism expressed by businesses and the tightening

labor market translates into continued strong growth in wages for employees. For 2016, the

Bureau of Labor Statistics reported average increase in wages and salaries was 2.3%. For the

Accommodations and Food Services sector, the wage and salary increase was 3.7%. Besides

the lodging industry, this sector includes restaurants, which has a larger workforce than does

accommodations and is not representative of the lodging industry.

As reported by BLS for the Accommodation sector, employment in hotels has been above 1.9

million for over 2-year. Employment levels in the lodging have been at record levels for the

past 3 years.

Source: Bureau of Labor Statistics, January 2016

This year should continue to set more new records for employment as new hotels enter

markets around the country, increasing the competition for experienced and qualified workers

1,600.0

1,650.0

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1,750.0

1,800.0

1,850.0

1,900.0

1,950.0

2,000.0

Total Employment Accommodation Sector (000's)

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in the lodging sector. This finding is amplified even more by the 2016 actual increases in

wages in the lodging industry when compared to the budgeted increases.

The following chart shows the number of hires and unfilled job openings in the

Accommodation and Food Service industries at the end of each month as provided by the

Bureau of Labor Statistics. Hires during 2016 exceeded the prerecessions levels. Unfilled jobs

stabilized last year at 650,000 to 670,000 and should remain at or near this level through 2017.

This represents 40% to 45% of jobs remaining open at each month end. As you can see from

the chart, unfilled jobs for 2015 and 2016 exceeded the highest level experienced before the

Great Recession. These factors will lead to higher turnover rates as employees feel more

confident about leaving a job in search of a better job opportunity.

Source: BLS JOLTS Survey, January 2017

U.S. LODGING 2017 WAGE FORECAST

WageWatch is forecasting a continuation of record employment for the lodging industry in

2017; although, the growth rate has slowed as full employment has been reached for the

existing supply of hotels. We are forecasting an additional 8,000 to 10,000 jobs being added

to the workforce in 2017. This estimate is based in part on CBRE Hotels Americas Research’s

Hotel Horizons forecast of an increase in hotel supply of 2% for 2017. Their forecast calls

for a small decline in occupancy from 65.5% in 2016 to 65.4% in 2017, with RevPAR

increasing by 3.0% as compared to 3.2% in 2016.

This conclusion is also based on the strong possibility that economic growth in 2017 will be

stronger than 2016 and could be the strongest in recent years, exceeding the Federal Reserve’s

forecast. The strong financial performance of the lodging industry and the continued

improvement of the national economy will result in a tightening labor market and increasing

pressure on filling open positions.

100

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400

500

600

700

800

900

1000Hires and Unfilled Jobs (000s)

Unfilled Job Openings New Hires

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For 2017, WageWatch forecasts an increase in wages of 3.2% for all positions in the lodging

industry, which is slightly higher than the actual increase reported for 2016 of 3.1%. Exempt

positions will increase on average 2.9% as compared to 2.2% last year, and non-exempt

positions will increase by 3.5% as compared to 3.8% in 2016.

The forecast increase of 3.2% for the lodging industry is well above the increases for the total

civilian workforce in the U.S. of 2.3% for 2016 and should exceed the overall increase for all

industries in 2017. The following chart compares our forecasted wage increases versus

budgeted and actual performance for the years 2011 through 2016, and our 2017 forecast

wage increase versus the planned budgeted wage increases as reported by survey participants

in the 2017 Budgeted Wage Survey of over 8,500 hotels representing over 1.8 million rooms

and 580,000 employees.

Source: WageWatch Annual Budgeted Wage Surveys and PeerMark ™ Surveys

* * * * *

Randy Pullen is the President and CEO of WageWatch, Inc. He has been a leader in the Lodging

and Gaming market sectors for over a quarter of a century. He founded WageWatch in 2001 to

provide Web-based compensation surveys for the hospitality and healthcare industries. He was

assisted in the analysis and writing of this year’s forecast by Octavian Immers, lead data analyst at

WageWatch, Inc.

WageWatch PeerMark and Benchmark salary surveys offer accurate, up-to-date reports on pay

practices and compensation data in 110 markets in the U.S. and Canada that keep you current with

your competition in your market. For more information on our consulting services, salary surveys,

benefit survey and market reports, please call WageWatch at 888-330-9243 or at

www.wagewatch.com

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Forecast of Lodging Wages vs. Actual

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