According to a forecast from AAA Travel, 35.5 million Americans will travel 50 miles or more this this Labor Day weekend, the highest travel volume for the national holiday since 2008 and a one percent increase over last year.

The majority will be travelling by personal vehicle (30.4 million), while about 2.6 million will travel by air, which means that this year will have the highest Labor Day air travel volume since 2007.

The AAA Labor Day Travel Forecast also included an analysis of past Labor Day travel statistics. According to this analysis, when Labor Day falls later in the month American’s are less willing to travel. This year, Labor Day will occur on the latest day possible – September 7th – so if the forecast bears out, this year will be an exception to the rule.

What makes this year so different? The Forecast also notes that rising wages and falling gas prices have helped to boost disposable income, which rose 3.5 percent this year. But if wages are going up, shouldn’t gas prices be increasing as well? It turns out that gas prices are determined by a number of complex global factors (National Geographic has a great article on this topic). In short, prices at the pump have fallen because of the global crude oil supply glut, which has pushed oil prices down by more than 50 percent. The crude oil price downturn has been so extreme that it has pushed gasoline prices down despite the typically high demand for gasoline in the summer and an unusual refinery backlog in the U.S.

The real question we want to answer is this: are falling gas prices affecting Labor Day travel plans, or is there another factor at play?

The folks at AAA seem to think that low fuel prices are contributing to the uptick in Labor Day travel volumes, but are not the only factor. It is more likely that travel volumes are increasing this year due to a combination of low fuel prices, a strong labor market, and rising home prices – all of which are contributing to a higher average disposable income in the U.S.

After all, a higher disposable income typically correlates with more travel and leisure activities. And in the U.S., disposable income has been rising steadily over the past several years, reaching a near record high of $13.4 trillion in July (down slightly from an all-time peak achieved in May 2015). If you combine the effect of record disposable incomes and low gas prices, it is no surprise that Labor Day travel forecasts are showing a higher volume of travellers for this year.

As you can see from the graphic above, gas prices have fallen significantly and are now below 2009 levels. The graphic shows a very slight inverse correlation since 2012 between gas prices and the number of Labor Day travellers in the U.S. Compared to last year, gas prices are 25 percent lower, while the number of travellers has only increased by about one percent.

But if you look over the entire time series, it is clear that gas prices are not the only factor deciding the number of travellers. For example, travel peaked in 2008, increasing by 30 percent over the previous year when pump prices also increased by 30 percent. There were clearly more factors at play: namely elevated incomes and, in particular, home prices.

Looking at the Case-Shiller Home Price Index over the past 10 years, you can why more people would have chosen to travel in 2008: Home prices were extremely high – though off from their 2006-2007 peak. In fact they were so high that prices have yet to fully recover, and may not for quite some time.

Clearly, the price of gasoline is a consideration when making travel plans, but overall it is not a good indicator for American travel plans. Travel volumes seem to have more to do with disposable income and economic optimism. If Americans feel optimistic about their financial future, they are more likely to travel. Conversely, a poor economic outlook my lead to more conservative spending habits.

You can bet that the hotel industry understands this: AAA Three Diamond lodging prices this Labor Day will reach 5-year highs, growing a full two percent over last year. Two Diamond properties will be a whopping 10 percent higher than they were last year. So even though gas prices, are lower, Americans will not necessarily save money on travel this Labor Day weekend.

The bottom line . . .

This year – if the AAA Forecast bears out – a near record number of Americans will be spending their Labor Day weekend travelling. This suggests that Americans are optimistic about the state of the U.S. economy – despite the recent turmoil in China and emerging economies.

Have any great Labor Day travel plans? Drop us a line! We would love to hear from you.

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