Against the combined drag of the stronger Canadian dollar versus the U.S. currency and a sharp escalation in energy costs, total tourism spending in Canada increased by a solid 0.9% quarter over quarter in the second quarter of 2008.

The 0.9% figure is the same rate that tourism spending increased in the first quarter and somewhat below the 1.3% it grew in the second quarter of 2007.

Not surprisingly, the major contributor to this solid growth of total tourism was stronger growth of domestic tourism spending, which accounts for almost 80% of the total.

Driven by real disposable income increases, spending by Canadian residents on accommodation increased by 2.6% quarter over quarter, compared to a 0.6% increase in spending by non-residents.

Despite the increased spending on accommodation, year-to-date hotel occupancy rates for the country as a whole were down by 1.2% in August 2008 compared to the same period in 2007, according to PKF Consulting.

This slowdown in hotel occupancy helps to explain the softening in year-to-date hotel and motel construction starts in 2008 versus 2007.

Based on CanaData information, the value of hotel and motel construction starts for the country as a whole is down by 15% year to date, due to declines in Québec (-32%), Ontario (-8%), Manitoba (-72%), and British Columbia (-39%). These declines more than offset a healthy increase in Alberta.

Looking ahead, it appears likely that the recent period of extreme financial market volatility, persistent tight credit conditions and the recent sharp decline in the Canadian dollar versus the U.S. dollar will slow spending on both business and personal travel early in 2009.

However, assuming that oil prices remain in the range of $80 to $90 US per barrel and the Canadian dollar stays in the vicinity $0.90 US, the volume of U.S. cross-border traffic should improve.

This improvement should lead to a pick up in foreign spending on travel and tourism and ultimately contribute to a strengthening of hotel and motel related construction late in 2009 and extending into 2010.