Americans have been enjoying “revenge trips” since pandemic-era restrictions were lifted, and the recent rise in the dollar has made it even more attractive.
In fact, so many Americans are heading to Europe that many cities are trying to find ways to stop overtourism. That’s because the Federal Reserve’s aggressive rate hikes and “higher for the long term” policy have strengthened the dollar against major global currencies, which have fallen as other central banks are expected to cut rates soon.
The U.S. Dollar Index, which measures the dollar against a basket of currencies, has jumped about 4% year to date and 5.6% from its July 2023 low. The result is that the dollar travels a longer distance abroad, making holidays abroad less expensive. for Americans.
But U.S. tourism abroad is treated as an imported service when calculating GDP, and growth was disappointing in the first quarter, partly due to the broader trade deficit. In recent months, the share of service imports allocated to travel has reached its highest level since 2005, when the dollar also enjoyed a period of strength, Wells Fargo said Friday.
“In terms of trade in services, the United States has a trade surplus, so if foreign travel continues to rise along with growing goods shortages, net exports could have a significant impact on real GDP growth,” the analysts wrote.
Wells Fargo also estimates that during a similar period of dollar strength from 2014 to 2015, tourism imports (Americans vacationing abroad) grew by about $1.1 billion, while tourism exports (foreigners vacationing in the U.S.) rose virtually did not change.
Of course, tourism services worth $1.1 billion account for a 1.5% share of the overall trade balance, analysts add. But don’t let that small fraction fool you.
“In short, the rise in international travel may not be enough to make a dramatic difference in any given month, but over time it could become a more significant driver of net exports than currently estimated,” Wells Fargo concluded.