US service spending on hotels, airfare, dining falls three months in a row, first drop since 2008

Recent data from Bank of America indicates a notable downturn in US consumer spending on key service sectors, including hotels, airfare, and dining, marking a three-month consecutive decline—the first such streak since 2008. This development raises questions about the resilience of consumer-driven growth in the world’s largest economy, particularly as it echoes patterns from the lead-up to the global financial crisis. Investors should scrutinise this trend, as it could signal broader economic softening amid persistent inflationary pressures and shifting household priorities.

Contextualising the Decline in Service Spending

The US economy has long relied on robust consumer expenditure, which accounts for roughly 70% of gross domestic product. Services, encompassing travel and leisure activities, have been a bright spot in recent years, buoyed by post-pandemic revenge spending. However, the latest figures suggest a reversal. Spending in these areas has contracted for three successive months, a pattern not observed since the tumultuous period of 2008, when the housing market collapse triggered widespread recessionary fears.

Historical parallels are instructive. In 2008, declining service expenditures preceded a sharp economic contraction, as households curtailed discretionary outlays in response to job losses and financial uncertainty. Today, while unemployment remains relatively low—hovering around 4.1% as of mid-2025 based on Bureau of Labor Statistics data—the cost-of-living squeeze appears to be biting harder. Inflation, though easing from its 2022 peaks, continues to erode purchasing power, with core personal consumption expenditures rising at an annualised rate of 2.6% in the second quarter of 2025, according to the Bureau of Economic Analysis.

This pullback in service spending aligns with broader indicators of consumer caution. For instance, the US Bureau of Economic Analysis reported that personal consumption expenditures on services grew at a subdued pace in the first half of 2025, lagging behind goods spending. Within services, the hospitality and travel segments have shown particular vulnerability, reflecting a pivot towards essential needs over luxuries.

Breaking Down the Affected Sectors

Hotels and accommodation services have felt the brunt of this slowdown. Data from industry trackers reveal that occupancy rates in major US chains dipped below pre-pandemic averages in early 2025, with revenue per available room contracting by approximately 2–3% year-on-year in select markets. This mirrors a global trend where economic headwinds, including elevated interest rates, have prompted consumers to forego vacations or opt for budget alternatives.

Airfare spending, another pillar of travel-related outlays, has similarly softened. Airline industry reports from the first half of 2025 highlight a moderation in domestic bookings, with average ticket prices stabilising after sharp post-pandemic hikes. The International Air Transport Association noted in its June 2025 outlook that North American passenger demand growth slowed to 5.2% year-on-year, down from double-digit increases in prior periods, attributing this to macroeconomic uncertainties.

Dining out, often seen as a barometer of discretionary confidence, has also waned. Retail sales data for restaurants and bars, as compiled by the Census Bureau, showed a 1.5% month-on-month drop in February 2025—the steepest in two years—followed by uneven recovery. This comes amid reports of consumers trading down to fast-casual options or home cooking to manage budgets strained by food inflation, which stood at 2.2% annually as of mid-2025 per the Consumer Price Index.

Implications for the Broader Economy

This sustained dip in service spending could foreshadow a moderation in overall economic momentum. Analysts at Morgan Stanley, in their June 2025 insights on US consumer trends, projected that spending growth might slow to 1.5–2% in the second half of the year, influenced by weakening labour markets and volatile equity performance. A model-based forecast from the firm suggests that if service expenditures continue to lag, real GDP growth could be trimmed by 0.3–0.5 percentage points annually.

From an investor perspective, this trend underscores vulnerabilities in sectors heavily exposed to consumer discretion. Hospitality giants and airline operators may face margin pressures if demand remains tepid, potentially leading to revised earnings guidance. For example, historical data from 2008–2009 shows that travel and leisure stocks underperformed the broader market by 15–20% during recessionary phases, as per S&P Dow Jones Indices analysis.

Moreover, this spending shift highlights a bifurcation in consumer behaviour. High-income households continue to splurge on premium experiences—Mastercard’s 2025 data points to sustained outlays on bucket-list travel among top earners—while middle- and lower-income groups cut back. A Bankrate survey from May 2025 revealed that 54% of US adults anticipate reducing expenditures on travel, dining, and entertainment this year, citing economic concerns.

Sentiment among economists remains cautiously optimistic, with a consensus from Bloomberg’s July 2025 survey indicating a 15% probability of recession in the next 12 months, down from 25% earlier in the year. However, verified sources like the Conference Board’s Consumer Confidence Index, which fell to 100.4 in July 2025, reflect growing pessimism about future income prospects.

Potential Catalysts and Risks

• Interest Rate Dynamics: The Federal Reserve’s stance on monetary policy will be pivotal. With rates held at 5.25–5.50% as of August 2025, any cuts could alleviate borrowing costs and stimulate spending. Analyst-led projections from Goldman Sachs suggest two rate reductions by year-end, potentially boosting service sectors by 1–2%.
• Labour Market Health: Job gains averaged 170,000 monthly in the first half of 2025, per payroll data, but slowdowns in hiring could exacerbate spending caution. If unemployment ticks up to 4.5%, as some models forecast, discretionary cutbacks may intensify.
• Global Influences: International tourism to the US is projected to decline by 7% in 2025, equating to a $12.5 billion shortfall, according to the World Travel & Tourism Council. This compounds domestic weaknesses, particularly for coastal and urban hospitality hubs.

Dry humour aside, one might quip that American consumers are finally discovering the joys of staycations and home-cooked meals—not out of choice, but necessity. Yet, this belies a serious undercurrent: if the trend persists, it could pressure corporate profits in consumer-facing industries, prompting portfolio reallocations towards defensive assets like utilities or staples.

Strategic Considerations for Investors

Navigating this environment requires a balanced approach. Diversification into resilient sectors, such as technology or healthcare, which are less sensitive to service spending fluctuations, may offer insulation. Meanwhile, monitoring leading indicators—like credit card delinquency rates, which rose to 3.1% in Q2 2025 per Federal Reserve data—will provide early warnings of deeper retrenchment.

In summary, the three-month decline in US service spending on hotels, airfare, and dining, unprecedented since 2008, serves as a cautionary signal for economic watchers. While not yet a harbinger of recession, it merits close attention, as sustained weakness could ripple through markets and necessitate policy responses. Investors would do well to factor this into their theses, blending vigilance with opportunism in an evolving landscape.

References

• Bank of America. (2025). Consumer spending indicators.
• BEA. (2025). Personal consumption expenditures. https://www.bea.gov/data/consumer-spending/main
• Bureau of Labor Statistics. (2025). Employment data (Mid-year update).
• Consumer Price Index. (2025). US food inflation data.
• Conference Board. (2025). Consumer Confidence Index (July 2025).
• Federal Reserve. (2025). Credit card delinquency rates and monetary policy updates.
• Forbes. (2025, April 1). Americans pulling back travel spending. https://www.forbes.com/sites/suzannerowankelleher/2025/04/01/americans-pulling-back-travel-spending-in-2025/
• International Air Transport Association. (2025, June). North American air travel demand outlook.
• Mastercard. (2025). Consumer discretionary spending trends among high-income households.
• Morgan Stanley. (2025). US consumer spending trends. https://www.morganstanley.com/insights/articles/us-consumer-spending-trends-2025
• S&P Dow Jones Indices. (2009). Historical performance of consumer discretionary stocks.
• Statista. (2025). Consumer spending changes in US accommodation. https://www.statista.com/statistics/1239731/consumer-spending-change-accommodation-us/
• US Census Bureau. (2025). Retail sales for restaurants and bars.
• World Travel & Tourism Council. (2025). International tourism projections to the US.
• Additional reference URLs: https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/the-state-of-the-us-consumer; https://www.ticketinghub.com/blog/international-travel-consumer-spending-trends-in-2024; https://businessinsider.com/sc/consumer-spending-is-shifting-to-purpose-passion-and-bucket-lists; https://www.credaily.com/briefs/consumer-behavior-trends-reshaping-retail-and-dining-in-2025/; https://cpapracticeadvisor.com/2025/05/29/over-half-of-americans-expect-to-spend-less-on-fun-purchases-this-year-survey-finds/161758