Monthly Economy & Travel Industry Summary: October 2025
State-level data and private sector indicators provides key information due to the current government shutdown
At a Glance: Finding Direction in the Absence of Economic Indicators
- At the time of writing this summary, the government shutdown was four weeks old with little sign of an end in sight.
- A partial federal government shutdown doesn’t significantly alter the overall economic outlook unless it becomes prolonged, and the impacts will grow the longer it lasts.
- Attention shifts to state-level data and private sector indicators in the absence of government data due to the shutdown.
The Details
Perceptions of the economy’s health have been clouded by the lack of data due to the government shutdown. The September Labor Report was not released, and data on weekly jobless claims are also on hold. In their absence, we can use state-level claims data to extrapolate the overall claims data. We estimate seasonally adjusted initial claims fell 17,000 to 217,000 in the week ended October 11, dropping the four-week moving average from 227,000 in the prior week to 223,250, the lowest since early August.
The claims data don’t signal a further weakening in labor market conditions, at least in the private sector, but don’t offer much assurance that things are improving either. In the absence of more comprehensive data on the labor market during the government shutdown, we expect the Fed to err on the side of caution and lower rates when it meets during the last week of October.
While most federal data is postponed during the government shutdown, the BLS recalled workers to produce the Consumer Price Index report because the September figures are required to calculate cost-of-living adjustments for 2026 for various benefit programs, including Social Security. Although prices rose 3.0% in September, exceeding the Federal Reserve’s 2.0% target, worries about further weakening in the labor market make a rate cut likely.
Worries about the labor market and inflation contributed to the Conference Board Consumer Confidence Index® declining to 94.2 (1985=100) in September, down from 97.8 in August. Both the Present Situation Index (consumers’ assessment of current business and labor market conditions) and the Expectations Index (consumers’ short-term outlook for income, business, and labor market conditions) weakened. Consumers’ perceptions of current job availability fell for the ninth straight month, reflecting the decline in job openings.
Small business optimism also fell in September, according to the NFIB Small Business Optimism Index, as the share of firms expecting the economy to improve tumbled and inventory sentiment deteriorated.
However, there were some encouraging signs as hiring intentions rose for the fourth consecutive month to their highest since January. Small businesses adopted a cautious approach to hiring earlier this year due to the heightened policy uncertainty and shed jobs, on net, in four of the last five months. But with measures of policy uncertainty improving lately, some pent-up hiring among small businesses may get released in Q4.
The NAHB homebuilder sentiment index was better than expected thanks to a jump in builders’ assessment of home sales six months from now. Sentiment about current sales and homebuyer traffic also improved but remained below 50, the dividing line between good and poor housing market conditions.
The improvement in homebuilders’ view of home sales in 2026 aligns with our view that housing market activity will pick up in 2026 as mortgage rates move lower and the benefits of the tax cuts enacted last summer kick in. Nevertheless, we think builders will be cautious about undertaking new construction until they sell some of their accumulated inventory of completed, unsold homes, which is at a 16-year high.
Looking ahead, we expect this holiday shopping season to be the strongest in four years with a solid gain in real (inflation-adjusted) spending. We define holiday sales as retail spending in November and December, excluding purchases of autos, gasoline, and food and drink at bars and restaurants.
At first glance, this view of holiday spending appears at odds with some concerning fundamentals. Consumer confidence is low, the labor market is slowing, and tariffs are keeping inflation elevated, which is driving a slowdown in households’ real disposable incomes.
Our view is underpinned by strong household balance sheets, in aggregate, and the stock market surge. This disproportionately increases spending power for high-income and older households and will more than offset a slowdown in spending by younger and lower-income households.
Consumers on low and moderate incomes haven’t benefited as much from the surge in equity markets. Furthermore, workers at lower-wage levels and young workers have been at the forefront of the labor market slowdown this year, putting pressure on household finances.
One risk to our forecast is that consumers pull more of their holiday spending into October, and a protracted shutdown that extends well into November is another downside risk. Finally, holiday sales reflect current conditions and are not a bellwether of what will happen to spending next year. We are upbeat about the consumer outlook in 2026, partially because the bulk of the personal tax cuts will begin to show up during tax refund season. We expect a broader fiscal boost to lift activity and increase hiring and income growth as the year progresses.
At a Glance: International Travel Rebound Forecast to Begin in 2026
- International visitor arrivals have declined in 2025 but are forecast to grow in 2026.
- Domestic visitation is posting modest growth in 2025 with similar trends expected in 2026.
- The travel sector is expected to benefit from several “mega-events” in the coming years, beginning with the 2026 World Cup.
The Details
The recently updated travel forecast by Tourism Economics, on behalf of the US Travel Association, estimates the total number of trips is forecast to rise 1.6% this year, down from 2.4% growth last year. Domestic travel is on pace to rise 1.9% in 2025 while international visits to the US are projected to fall 6.3%.
Despite a slowing economy, domestic travel has proven to be resilient. Day and road trips, in particular, have shown relative strength this year as consumer preferences shift amid economic uncertainty. The shift in travel preferences is manifest in hotel demand and airport volumes that are essentially unchanged from last year’s levels.
Higher-income households continue to drive gains, prioritizing experiences over goods and supporting growth in travel segments, including Luxury hotels, cruises, and outbound international trips.
Cruising growth has been particularly strong in recent years. U.S. cruise passenger volume is forecast to rise 8.4% in 2025, the third consecutive year that US cruise passenger volume has set a record, and US cruise volume is projected to rise 4.5% in 2026.
Cruise volume in 2025 is on pace to be 46% above 2019’s level, and the 2026 forecast is 53% higher than the pre-pandemic benchmark. For perspective, airport volumes are about 7% above the 2019 baseline, while hotel demand is about 1% below the pre-pandemic comparison.
Business travel has slowed in 2025, reflecting a cautious approach to business spending and hiring, but the outlook for business travel improves next year as the economy accelerates and investment incentives under the OBBBA encourage further business activity over 2026-27.
Domestic travel growth in 2025 has been uneven, with growth in leisure travel outpacing business trips, and auto trips growing while air travel plateaued. Domestic travel is forecast to grow 2.0% in 2026, little changed from the 1.9% growth in 2025, but growth is expected to be more evenly distributed across leisure and business, and auto versus air travel.
Negative sentiment from increased geopolitical tensions is expected to drive a 6.3% decline in inbound international visits in 2025, the first decline since the pandemic-induced drop in 2020. International visits are projected to rise 3.7% in 2026 as tensions ease and uncertainty diminishes, but the decline in 2025 has delayed the international travel recovery. International arrivals are forecast to reach 2019’s pre-pandemic benchmark in 2029, representing a 10-year recovery path.
Travel price growth has remained muted in 2025, driven by falling gas prices and modest hotel price increases. The Travel Price Index was up just 0.4% in August, compared to the same period last year, well below the 3.1% rate of core inflation in August.
Travel price growth is expected to stay modest during the next few years as well, averaging 2.0% over 2026-2029. Travel prices are forecast to rise at a slower rate than the overall inflation forecast for the same period (2.4% annual average).
In addition to an improving economy in 2026 and modest growth in travel prices, the U.S.travel industry also stands to benefit from several major events over the next few years. The FIFA 2026 World Cup, America’s 250th Anniversary, the 2028 Summer Olympics in Los Angeles, the Men’s and Women’s Rugby World Cups in 2031 and 2033, and the 2034 Winter Games in Salt Lake City have the potential to generate more visits than ever.
Although the outlook for travel is positive, the industry faces many of the same risks as the overall economy. Consumer and business uncertainty remains elevated, and measures of confidence are low. If broader economic conditions deteriorate, then travel is likely to decrease as well.
Additionally, the U.S. risks further deterioration of international inbound visits based on potential increases in visa fees, extended wait times for visa applications and renewals, and negative sentiment towards the U.S. in key markets.
The Monthly Economy & Travel Industry Summary partners with Tourism Economics, an Oxford Economics company. Combining rigorous economic analysis with decades of travel industry expertise, Tourism Economics is an industry-leading insight resource. Learn more at www.tourismeconomics.com.
