Since pandemic-era restrictions were lifted, Americans have been enthusiastically taking “revenge trips,” and the recent rise within the dollar has made this much more attractive.
In fact, so many Americans are traveling to Europe that many cities are searching for ways to curb excessive tourism. That’s since the Federal Reserve’s aggressive rate hikes and longer-term higher stance have strengthened the dollar against major global currencies, which have slumped as other central banks are expected to start cutting rates soon.
The U.S. dollar index, which measures the dollar against a basket of currencies, has risen about 4% because the start of the 12 months and 5.6% since its low in July 2023. The result’s that the dollar travels an extended distance abroad, making foreign vacations cheaper for Americans.
But American tourism abroad is treated like an imported service when calculating GDP, which posted disappointing growth in the primary quarter, partly resulting from a wider trade deficit. According to a press release from Wells Fargo on Friday, the share of services imports accounted for by travel reached its highest level since 2005 in recent months, because the dollar also experienced a period of strength.
“On the services side of trade, the United States runs a trade surplus. “So if outbound travel continues to increase as the goods deficit rises, net exports could weigh significantly on real GDP growth,” analysts wrote.
Wells Fargo also calculated that in an analogous period of dollar strength from 2014 to 2015, travel imports (Americans vacationing abroad) increased by about $1.1 billion, while travel exports (foreigners vacationing within the United States) increased by about $1.1 billion vacation within the USA) have hardly modified.
To make sure, travel services price $1.1 billion represent a 1.5% share of the overall trade balance, analysts added. But don’t let this small percentage idiot you.
“In short, outbound travel growth may not be enough to move the needle much in any given month, but over time it could be a more important driver of net exports than is currently appreciated,” Wells Fargo concluded.
