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How will the tourism economy recover from COVID-19?

Street signage with tourism markers for visitors in Northfield, Minnesota.

Tourism is a cornerstone of Minnesota’s economy. As fall arrives, it’s worth reflecting on the potentially longer-lasting effects of COVID-19 on the economy and what that means for tourism communities.

The impact of COVID-19 on the tourism industry

COVID-19 affected every aspect of the American economy. The impact varied considerably across industries, demographics, and regions. This was true for tourism as well. The average American consumer, buoyed by stimulus payments, continued to spend money on recreation-related items, just in many different ways than before the pandemic.

Spending on recreation-related goods exploded

Faced with quarantines and social distancing, but with stimulus checks in their pockets, American consumers doubled down (almost literally) on buying recreation-related goods and services. Overall, between January of 2019 and March 2021, American spending on these goods increased by 45 percent. Sports and recreational vehicles experienced the highest percent changes during the period.

Personal consumption expenditures, tourism-related goods, United States

Chart 1

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Spending on the tourism experience declined

Meanwhile, consumers pulled back on spending for experience-related tourism and recreation. During the second quarter of 2021, American consumers spent 50 percent less on these services than compared to the first quarter of 2019.

Personal consumption expenditures, recreation-related activities, United States

Chart 2

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What does this mean for Minnesota’s tourism industry?

There are two ways I've been thinking about the changes from the pandemic that might become permanent. The first is new habits – we all formed new habits during COVID-19, which may stick around longer. The second is the level of investment – the higher our investment in a new activity, the more likely we are to continue doing it.

Spending for recreational vehicles increased significantly during the pandemic, especially for boats, recreational vehicles, and all-terrain vehicles. For people with new boats, campers, and ATVs, they are likely to continue using them. In the medium-term (two to five years), I would expect people to opt for travel that involves their new vehicle – trips to the cabin/lake or cross-country RV trips. In the meantime, people may do less of other tourism experiences, such as getting a hotel room in the Twin Cities for the weekend to attend a concert. For local tourism promoters, this might mean adjusting advertising to appeal to consumers looking for places to use their new vehicles.

Personal consumption expenditures, select recreational vehicles, United States

Chart 3

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Author: Brigid Tuck, Extension senior economic impact analyst

Related topics: Community Economics Tourism
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