Gas prices and economy

[John Carbone]

Gas prices are really starting to accelerate with the national average at $3.40, which is historically very high. Oil is only just over $80 a barrel, and I believe $150 a barrel was the ATH several years ago. GDP only came in at 2 percent and we still have revisions that are expected to be below 1 percent when it is finalized, and this despite all the liquidity injected into the market.

my question is, high gas prices impact short term rentals especially in the panhandle and Smokey mountains. These markets are on fire and at all time highs but headwinds look extremely bleak and reminiscent of the cold winter from 2008. How are you all feeling about this, is this just FUD?

The data seems to show that we are at the beginning of a potential long period of stagflation reminiscent of the 1970s. 

[Marcus Auerbach]

I agree @Matthew Paul, fuel prices effect everything. Will be interesting to see how CPI / Inflation numbers develop over the next few months. Gov is saying that it is short lived and will come down. As a RE investor I have no problem with inflation, I actually welcome it as real estate prices appreciate, rents go up and my debt melts away. A scenario that concerns me much more is deflation; there are some analysts that predict deflation and I sincerly hope they are wrong!

Gas prices in itself are an emotional talking point, but I believe most people don't drive enough to make a real impact on their budget. Yes it sucks if you pay $100 instead of $60, but most of the trucks I see every day are just used to haul one person and nothing is ever in the back. Maybe a smaller vehilce would do? Take a look at Europe, gas is about twice the price of what it is in the US; and you really don't need a 400HP V8 to go 55mph...

[John Carbone]

Originally posted by @Nick Robinson:

@John Carbone

Yes that is true that as interest rates rise your buying power will go down. As the FED begins its taper we will see interest rates continue to rise. They can not raise them too much because one it will crush the markets and two I believe it’s around 3.67% on 10yr that the government will default.

So you have to ask yourself if the markets crash or the government can’t pay its bills what’s the most likely thing the FED and government will do? There is no way they cut back on entitlements so the FED will jump back on QE. When that happens you will see big time inflation.

I believe we could see something similar to the 50s after WW2. The government had a lot of debt from the war and artificially kept interest rates low and let inflation take care of the debt. Big difference between now and then in the 50s most of our debt was a one time cost. Now a lot more of our debt is adjustable, entitlements, which means you have to inflate it more. The last I heard was you would need to inflate the US dollar 20% each year for 5 years to bring us back to 70% GDP/debt.

Long story short you want to own assets. Normal/Smart investing strategy will prevail. Buy property in a stable or growing market, purchase under market value, and make sure you have positive cash flow monthly.

This is my thinking as well. In the Short term rates may rise, and we could see a small correction in asset prices, but then they will just go back to the fed playbook and lower rates again, and maybe even lower this time (think Japan and 1 percent mortgages) because realistically they can’t raise rates long term.

I don’t really see a deflation environment (maybe very short term) but I just don’t see it. Minimum wage is now officially $15 and that is not being taken away from people. Covid pretty much did what congress always wanted to but couldn’t pass. The market has now set that. Good luck in a year finding people to work the jobs they currently make $15 at doing it for $8-$10, the labor shortage will be even more ridiculous than it is now. 

The smoky mountains seem safer in this scenario because not many vacation destinations appeal to virtually every income earner. Everything is concentrated in a few areas and people can spend as much or as little as they want and they can still get an experience and a vacation. You can have a 1 bedroom cabin in the same area as a $500 4 bedroom cabin and people aren’t sacrificing safety/area for it.  

[Jeff T.]

@John Underwood

That actually sounds bad that it’s on fire , lol.

[Bruce Woodruff]

I don't see increasing gas prices affecting STRs anytime soon. I don't know what $$price would affect ti, but it would be pretty high......not only do vacationers have more disposable income, but you also need to factor in that when life gets more stressful, people need to get away even more. For example, Covid was good for business re STRs.

[Ken Boone]

The biggest problem that can impact the smokies in my opinion is the labor shortage.  People do not want to work these jobs that are needed to support the tourist industry.  All of the restaurants are impacted, the tourist locations are impacted, everything is impacted by the labor shortage.  Businesses in that area are making changes, for instance some of the Starbucks in PF shorted there hours because no one even applies for the jobs they have open.  Recently, Steak n Shake in PF stopped having someone seat you, you now go to the counter to order and then they installed a drink machine so you get it yourself.  All because of not having workers.  Last week I saw an add out in front of one of the restaurants in town that said, "Now Hiring, Someone who will show up"  Next problem is going to be a shortage of cleaners and service people.  They are already overworked and lots of new cabins coming online.

[John Underwood]

Originally posted by @Ken Boone:

The biggest problem that can impact the smokies in my opinion is the labor shortage.  People do not want to work these jobs that are needed to support the tourist industry.  All of the restaurants are impacted, the tourist locations are impacted, everything is impacted by the labor shortage.  Businesses in that area are making changes, for instance some of the Starbucks in PF shorted there hours because no one even applies for the jobs they have open.  Recently, Steak n Shake in PF stopped having someone seat you, you now go to the counter to order and then they installed a drink machine so you get it yourself.  All because of not having workers.  Last week I saw an add out in front of one of the restaurants in town that said, "Now Hiring, Someone who will show up"  Next problem is going to be a shortage of cleaners and service people.  They are already overworked and lots of new cabins coming online.

 I agree.  Hopefully this is a relative short term problem. 

I have seen several fast foods places offer large hiring bonuses to try and get employees.

The place I just stayed at in Myrtle Beach had linens as optional. This saves on time making beds and time or expense of laundry. I could see things like this possibly becoming a necessity if the labor market doesn't pick up.

[Ken Boone]

@John Underwood Yea when you see Burger King offering $500 sign up bonuses you know there is a problem.

[Bruce Woodruff]

@John Underwood @Ken Boone

Sign of the times.....I just had a guest cancel because he owns his own business and can't get anyone to sign up for a forklift driver job. Starting salary is $25+ per hr. Huh?

[Justin Beasley]

@Ken Boone 

@Ken Boone A lot of truth to what you said about our labor issues. Saw a fast food restaurant advertising $23/hr last week. We have had labor issues for decades though. Most of the businesses in Pigeon Forge and Gatlinburg apply to have J-1 workers throughout our busiest months. While we have an affordable housing crisis here we have been building housing just for J-1 workers for many years now. The limited number of international workers willing to work low income jobs during the summer months has definitely taken its toll on our area. 

[Ryan Moyer]

Markets are back on ATHs after the greatest 6 month bull run in history, and everyone seems to have more money than they know what to do with.  Adults have gobs of money from the market and kids have gobs of money from crypto and meme stocks.  I am not really worried about gas prices affecting travel personally.

That's not even to mention a lot of the people we're booking at high rates are people that are going on driving vacations because the international vacations they usually spend $10k-$15k on are closed right now.  I doubt they stress too much about gas prices especially since they've all probably made huge coin in the markets.

[Ryan Moyer]

Originally posted by @John Underwood:

Originally posted by @Ken Boone:

The biggest problem that can impact the smokies in my opinion is the labor shortage.  People do not want to work these jobs that are needed to support the tourist industry.  All of the restaurants are impacted, the tourist locations are impacted, everything is impacted by the labor shortage.  Businesses in that area are making changes, for instance some of the Starbucks in PF shorted there hours because no one even applies for the jobs they have open.  Recently, Steak n Shake in PF stopped having someone seat you, you now go to the counter to order and then they installed a drink machine so you get it yourself.  All because of not having workers.  Last week I saw an add out in front of one of the restaurants in town that said, "Now Hiring, Someone who will show up"  Next problem is going to be a shortage of cleaners and service people.  They are already overworked and lots of new cabins coming online.

 I agree.  Hopefully this is a relative short term problem. 

I have seen several fast foods places offer large hiring bonuses to try and get employees.

The place I just stayed at in Myrtle Beach had linens as optional. This saves on time making beds and time or expense of laundry. I could see things like this possibly becoming a necessity if the labor market doesn't pick up.

I'm not sure it will be short term.  We're catching up on decades of real estate and living costs rising hundreds of percent while wages for these types of jobs remained stagnant or increased slowly.  When they complained everyone told them to find a better way to make money if they didn't like it, and now they have.

I'm not sure why $25/hr and no one jumping at it is interested is surprising.  Real estate and living costs in some of these places have increased by 1000% or more since they were making $7/hr there 15 years ago.  A lot of places are flumoxed they can't find someone to flip burgers for $15/hr or whatever, as if a 100% increase in wages when rent/living costs have increased by 800% is somehow a great deal.

[Kyle Alexander]

Originally posted by @Matthew Paul:

High fuel prices will affect everything , it is already happening . Food is up , materials are up , etc . A lot has to do with transportation costs .  I can see people staying closer to home or having staycations . 

It cost me $100 to fill my truck now , it was $65 . ( I fill up 3 times a week I run 3 trucks ) I pass that cost to my customers .  Now the 9 to 5 person cant do that . My wife showed me how much food has gone up .  For the average person , that money has to come from somewhere , and thats discretionary spending . The vacation money may be gone before vacation time 

Inflation is rampant and will only accelerate. With the fed recklessly printing, it’s only a matter of time. The only reason hyperinflation isn’t here is because we are exporting all our inflation overseas. What happens when foreign governments and entities stop subsidizing our over consumption via treasury purchases and all those dollars return home?

[Bruce Woodruff]

Originally posted by @Ryan Moyer:

 To me, only because these people are not getting other, better paying jobs.....they are choosing to not work at all...

[John Carbone]

Originally posted by @Justin Beasley:

@Ken Boone 

@Ken Boone A lot of truth to what you said about our labor issues. Saw a fast food restaurant advertising $23/hr last week. We have had labor issues for decades though. Most of the businesses in Pigeon Forge and Gatlinburg apply to have J-1 workers throughout our busiest months. While we have an affordable housing crisis here we have been building housing just for J-1 workers for many years now. The limited number of international workers willing to work low income jobs during the summer months has definitely taken its toll on our area. 

how bad is the shortage for cleaning crews in gatlinburg area? Are prices going up significantly? 

[JD Martin]

Originally posted by @Bruce Woodruff:

Originally posted by @Ryan Moyer:

 To me, only because these people are not getting other, better paying jobs.....they are choosing to not work at all...

 This is true, and in my opinion it's a dangerous mindset all the way around and also demonstrates why setting a reasonable floor for things like minimum wages that adjust with inflation isn't a bad idea. There are a lot of workers in these service industries that are doing just that - deciding they'd rather live in the hustle economy + a few government benefits than go back to work at all, even for much higher wages. That's well and good but business and marketplaces virtually always find a way to adjust to new realities. For example, someone mentioned optional linens. Seating yourself instead of having a hostess. Getting your own drinks. ETC. Once businesses discover ways in which they can still stay in business, still be profitable, and do it with a much smaller staff, that is going to be the new normal - so when a lot of these people fizzle out in the hustle/gig economy, they're going to find out that there's no job to go back to. That's going to leave a lot of disgruntled people walking around with no jobs and no prospects, demanding money and support from governments that are already bleeding. 

In Saudi Arabia & Iran, just to name two, the governments, propped up by oil money, have huge unemployment system benefits aimed at young people (under 35) because of their massive, permanent unemployment levels in a demographic that, if it's not working, is getting into trouble and fomenting revolution. It would be a mistake to think the same type of thing couldn't happen here. A smart government intervenes in the marketplace enough to ensure fair competition and access and keeping a reasonable balance at both ends and nothing more. Total government control of the economy and total laissez-faire policies are both disastrous. Now you've got a strong support for $15 minimum wages, which means virtually nothing as a lot these jobs can't find takers at $20. I saw some advertisements locally at Chik-Fil-A for line workers for almost $19/hr. There's a huge rejection of work at the bottom end, spurred on by the pandemic and associated government benefits, and when the dust clears a lot of these jobs are going to be permanently gone and these former workers will be in serious trouble. 

[Justin Beasley]

Originally posted by @John Carbone:

Originally posted by @Justin Beasley:

@Ken Boone 

@Ken Boone A lot of truth to what you said about our labor issues. Saw a fast food restaurant advertising $23/hr last week. We have had labor issues for decades though. Most of the businesses in Pigeon Forge and Gatlinburg apply to have J-1 workers throughout our busiest months. While we have an affordable housing crisis here we have been building housing just for J-1 workers for many years now. The limited number of international workers willing to work low income jobs during the summer months has definitely taken its toll on our area. 

how bad is the shortage for cleaning crews in gatlinburg area? Are prices going up significantly? 

Doesn't seem like they have taken a huge jump yet, but they are in high demand which can lead to other problems while you are building your team and relationships. It is pretty common to go through a crew or two before you find a good fit.

[Daniel Smyth]

@John Carbone

Nobody really cares about gas prices. We go where we need to go. We love to complain, but even with all of these new bike paths, there has been no rush of bikes being used because fuel is too expensive.

Covid fears and mandates that do not hold the weight of any law, are issues that slow or reduce vacations. I refuse to fly because of these issues. So, my vacations are shorter because I drive to those destinations. Driving is time.

As society changes, we just need to adapt and find that way to make our businesses profit.

[Joe Splitrock]

Gas prices may be high, but also consider vehicles today get better gas mileage. As others mentioned, a few dollars won't make a break a vacation to the smokies. Consider the hundreds of dollars per night that people spend and this is only a fraction of the cost.

I think the bigger risk to the smokies is the eventual shift back to air travel for vacations. Many people (my family included) chose to vacation domestically or drive for vacation due to COVID. People wanted to avoid airplanes or hotels to avoid being around people. Many vacation destinations were closed to travelers, so states and cities with less strict COVID policies benefitted. Another factor is that international travel has been shut down for a year, so people couldn't go to Europe or other countries. Even when international air travel became an option, COVID testing before travel added considerable risk of being stuck some place. 

Think of it this way, if you chose to go to the smokies instead of another destination, will you be back to the smokies next year? I realize some people go to the same place over and over, but many people like to travel to different destinations. No doubt the smokies will remain a great STR location, but the current trajectory of traveler increase is unlikely to continue at this pace.

It doesn't mean to not invest there, but run the numbers conservative. People who have been investing there for years will be fine. I just fear the newbies will be caught off guard if there is a shift in demand.

[Ryan Moyer]

Originally posted by @Bruce Woodruff:

Originally posted by @Ryan Moyer:

 To me, only because these people are not getting other, better paying jobs.....they are choosing to not work at all...

Whether it's other jobs, or trading crypto, or making online dropshipping businesses, or whatever it is they found better ways to make money just like everyone had been sarcastically telling them to for 20 years.

This "labor shortage" is something we earned.  Decades of catch-up.  The local ski resort here recently posted that they were canceling the summer concert series because they couldn't find workers "even though we're offering great wages and a sign-on bonus".  It was a pity post, looking for people to bash lazy millennials for them on Facebook.  But their ex-employees were pretty quick to point out the problem.  10 years ago they were making $7/hr and could buy a home nearby for $150k, or find any of a bunch of LTRs available at reasonable rates.  Now they can sign-on for a $250 one-time bonus and $15/hr (twice as much!) but the cheapest home nearby is $1m+ and there are pretty much zero long-term rentals in the valley because it's nothing but vacation homes.

Everything has been rising quickly the last couple decades except wages for low wage workers.  The idea we can just double it real quick and make up for all that lost ground, especially for a new generation that has found dozens of creative ways to make money that way we don't even understand (anyone minted any NFTs lately?) was doomed from the start, imo.

[Bruce Woodruff]

@JD Martin That was one of the best posts I've ever read. All actions have consequences and most people do not think about that. You are right that many of these folks who can't find the time or energy to work a decent job will soon have no jobs at all. Some of them (when they wake up) will become entrepreneurs and contribute to the economy.....most will whine and complain and expect the Government (I.E. the 'rest of us') to support them. Most of the 'rest of us' have no money or patience left for that concept. This is going to create an ISSUE.

Here's another thought - simultaneously get rid of the minimum wage AND all government handouts.....When people's bellies start to growl they will take any job for any $$. Just a thought....

[Ryan Moyer]

Originally posted by @Kyle Alexander:

Originally posted by @Matthew Paul:

High fuel prices will affect everything , it is already happening . Food is up , materials are up , etc . A lot has to do with transportation costs .  I can see people staying closer to home or having staycations . 

It cost me $100 to fill my truck now , it was $65 . ( I fill up 3 times a week I run 3 trucks ) I pass that cost to my customers .  Now the 9 to 5 person cant do that . My wife showed me how much food has gone up .  For the average person , that money has to come from somewhere , and thats discretionary spending . The vacation money may be gone before vacation time 

Inflation is rampant and will only accelerate. With the fed recklessly printing, it’s only a matter of time. The only reason hyperinflation isn’t here is because we are exporting all our inflation overseas. What happens when foreign governments and entities stop subsidizing our over consumption via treasury purchases and all those dollars return home?

Agreed.  Gas prices ebb and flow and are actually cheaper right now than they were 10 years ago, so it seems extremely silly to me to blame inflation on that.

I'm no economist, but something like 60% of all USD currently in circulation having been printed since the start of 2020 seems the much more likely culprit.  And while I understand the fed doing QE to support the stock market when the bottom was falling out I have no idea why it has still continued when the the market was back on ATHs more than a year ago.

[Bruce Woodruff]

Originally posted by @Ryan Moyer:

This is an easy one. Once the Govt starts taxing or printing money they never stop. 

[Ken Boone]

Originally posted by @Ryan Moyer:

Originally posted by @Bruce Woodruff:

Originally posted by @Ryan Moyer:

 To me, only because these people are not getting other, better paying jobs.....they are choosing to not work at all...

Whether it's other jobs, or trading crypto, or making online dropshipping businesses, or whatever it is they found better ways to make money just like everyone had been sarcastically telling them to for 20 years.

This "labor shortage" is something we earned.  Decades of catch-up.  The local ski resort here recently posted that they were canceling the summer concert series because they couldn't find workers "even though we're offering great wages and a sign-on bonus".  It was a pity post, looking for people to bash lazy millennials for them on Facebook.  But their ex-employees were pretty quick to point out the problem.  10 years ago they were making $7/hr and could buy a home nearby for $150k, or find any of a bunch of LTRs available at reasonable rates.  Now they can sign-on for a $250 one-time bonus and $15/hr (twice as much!) but the cheapest home nearby is $1m+ and there are pretty much zero long-term rentals in the valley because it's nothing but vacation homes.

Everything has been rising quickly the last couple decades except wages for low wage workers.  The idea we can just double it real quick and make up for all that lost ground, especially for a new generation that has found dozens of creative ways to make money that way we don't even understand (anyone minted any NFTs lately?) was doomed from the start, imo.

I don't necessarily agree with that concept.  The minimum wage was never intended as a tool to allow someone to earn a living wage.   It was intended as a low paying job to provide supplemental income to someone who wanted a part time job.  i.e.  high school and college kids, retired folks who want something to do part time, or to just pick up some supplemental income.    The $7/hr jobs were never intended as jobs to earn a living on.  Somewhere down the line, the concept that businesses were screwing people because they couldn't make a living on minimum wage jobs arose. Someone earning $7/hr was never going to afford the 150k home anyway.  That wasn't the point of the $7/hr jobs.

And just like you see with McDonalds, now we have a much higher minimum wage job and guess what you have much less jobs available now.  They have switched to kiosks on their front ends, where there used to be 3 to 5 part time kids working the front counter, you now have one.  Businesses are finding ways to adapt to higher employment cost and it is absolutely costing more jobs.  

[Ryan Moyer]

Originally posted by @Ken Boone:

From FDR himself...

“In my Inaugural I laid down the simple proposition that nobody is going to starve in this country. It seems to me to be equally plain that no business which depends for existence on paying less than living wages to its workers has any right to continue in this country.

By business I mean the whole of commerce as well as the whole of industry; by workers I mean all workers, the white collar class as well as the men in overalls; and by living wages I mean more than a bare subsistence level-I mean the wages of decent living.”

But that's even beyond the scope of what we're talking about here.  We're all spoiled because back in our day we could work 15 hours a week at Hardees and pay our entire college tuition and room and board.  Now someone working 40 hours a week at the same job can barely even pay rent with it in a lot of places.

And stuff like virtual kiosks at McDonald's are coming either way.  Those were being put in long before the minimum wage moved at all.  Not that it really matters because the issue is not a shortage of jobs, it's a shortage of people willing to live like animals so we can get our burgers 30 seconds faster.  

But anyway, we're a long ways off-topic from "how will rising gas prices affect STRs", so I'll let this go :P

[Ken Boone]

Yes right now the issue is not the shortage of jobs, but that could be the issue once things normalize.  The problem right now is too many people are getting too much free money and free benefits from the government and they are quite content with that lifestyle.  Meanwhile the other 50% of the country who actually pays taxes....and pays for these people to sit at home, and yet these people who sit at home and have their lifestyle paid for by 50% of the country still get to vote.. just seems messed up to me.