The Nevada Economy

It is almost certain that there will be no near term improvement in the Nevada economy. Whilst the US economy has just had two quarters of positive growth there are no signs that the Nevada economy has started a recovery. The US economy increased at an annual rate of 3.0 percent in the first quarter of 2010, following a 5.6 percent increase in the fourth quarter of 2009, but these first signs of recovery have not been matched by an increase in the discretionary spending of the US consumer, and it is this discretionary spending that is needed to drive a Nevada recovery.

Whether or not the recent signs of life in the American economy are sustainable, one thing that we can say for certain is that they are not enough to sustain Nevada as it continues to lag the US recovery. Taxable sales continue to fall at double-digit rates. Unemployment has reached 13.9 percent, occupancy rates at local hotels are in the low 70 percents, and room rates are deeply discounted over 2008 rates. Visitors, the lifeblood of the economy, have increased a mere 0.7 percent in the past year. Furthermore, the end of the construction-fueled boom has seen massive unemployment in the construction sector, and it is hard to imagine it will return to its former size in the near future. The State budget deficit was $887 million in March 2010, as a result of taxable sales being down by 6.6 percent over the year and gaming revenue down 3.2 percent over the same period.

Nevada’s reliance on tourism, including travel to conferences, and construction, means that it will continue to lag the recovery of the general economy. The double-digit drops in gaming revenue and taxable sales in Southern Nevada in 2009 were a direct result of the national decline in discretionary income that had been partially allocated to travel. Taxable sales in Southern Nevada have fallen from a high of $3.49 billion in December 2007 to a current value of $2.66 billion.

One of the best insights into the Las Vegas economy is the Southern Nevada Index of Leading Indicators, which is composed of 10 economic series, based on criteria used to build the National Index of Leading Indicators. The series and their respective weights are:

• Residential building units permitted 0.7
• Residential building valuation 0.9
• Commercial building permits 1.0
• Commercial building valuation 1.4
• Taxable sales 1.0
• Air passengers enplaned and deplaned 1.0
• Sales of gasoline (gallons) 1.2
• Gross gaming revenues 1.4
• Visitor volume 1.1
• Conventions held attendance 0.5

The Southern Nevada Index of Leading Indicators offers a picture of expected economic expansion over the coming four to six months, and Las Vegas continues to diverge from the national economy. The index, based on the most recent data disseminated for March, dropped just less than 0.3 percent from the February number. The index has been hovering around 125 for the past year, down from its peak of 135 in 2005. The fact that the index remains flat suggests that it may be some time before we see a general increase in economic activity in Southern Nevada. Commercial permitting, taxable sales, sales of gasoline, gaming revenue, and convention attendance dragged the index downward.

(Source: The Center for Business and Economic Research, UNLV)

Taking a closer look at the unemployment figures indicates that we are some way off a rise in home prices driven by the income of Las Vegas residents. Since the recession commenced in December 2007 Nevada’s unemployment rate has increased 8.8%. This is the largest increase of all the states, and Nevada has now overtaken Michigan as the state with the highest unemployment rate. The only positive is that the rate of unemployment decline has slowed, with a decline of 2.8% in May 2010 (31,900 jobs) relative to a 10.2% decline in May 2009.

(Source: NevadaWorkforce.com)

Nevada Real Estate:

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Economy Of Nevada

Whether the US economy can successfully skirt the hazards of a double dip recession, inflation, a currency crisis and rising interest rates, will have a direct impact on the direction of the economy of Nevada since it is driven by the discretionary spending of the American consumer.

After four straight quarters of decline US GDP growth moved into positive territory in the third quarter of 2009. Although GDP grew at an annual rate of 2.2 percent in the quarter, much of this is attributable to government spending linked to the federal fiscal stimulus package. The US economy expanded again in the 4th quarter, growing at a robust annual rate of 5.7 percent, and this was not only stimulus-related as there was growth in the manufacturing sector. Despite these positives unemployment sits at 9.7 percent, which is a 2.1 percent increase from one year ago.

Whether or not these signs of life in the American economy are sustainable, one thing that we can say for certain is that they are not enough to sustain Nevada as it continues to lag the US recovery. The current Nevada unemployment rate is 12.8 percent, a significant increase from the 11.8 percent of November 2009. Visitors, the lifeblood of the economy, have increased a mere 0.7 percent in the past year. Furthermore, the end of the construction-fueled boom has seen massive unemployment in the construction sector, and it is hard to imagine it will return to its former size in the near future. The State budget deficit was $887 million in March, as a result of taxable sales being down by 6.6 percent over the year and gaming revenue down 3.2 percent over the same period.

If one were to look for a positive angle it could be said that just as Las Vegas’s reliance on construction and tourism saw it suffer a disproportionate impact from the US recession, it is a leveraged play on the US recovery. That thinking hasn’t been born out yet, and perhaps that is a sign that the nationwide recovery is not deep and sustainable. Another reason that the national recovery is not having a knock on effect is that Las Vegas’s rapid growth led to structural imbalances in the real estate sector that will take some time to correct.

The double-digit drops in gaming revenue and taxable sales in Southern Nevada in 2009 were a direct result of the national decline in discretionary income that had been partially allocated to travel. Taxable sales in Southern Nevada have fallen from a high of $3.49 billion in December 2007 to a current value of $2.66 billion.

One of the best insights into the Las Vegas economy is the Southern Nevada Index of Leading Indicators, which is composed of 10 economic series, based on criteria used to build the National Index of Leading Indicators. The series and their respective weights are:

  • Residential building units permitted 0.7
  • Residential building valuation 0.9
  • Commercial building permits 1.0
  • Commercial building valuation 1.4
  • Taxable sales 1.0
  • Air passengers enplaned and deplaned 1.0
  • Sales of gasoline (gallons) 1.2
  • Gross gaming revenues 1.4
  • Visitor volume 1.1
  • Conventions held attendance 0.5

The Southern Nevada Index of Leading Indicators offers a picture of expected economic expansion over the coming four to six months, and Las Vegas continues to diverge from the national economy. Although the statistics are for the economy of Nevada as a whole, it is Las Vegas which is the engine of this economy.

economy-of-nevada

Source: Center for Business and Economic Research University of Nevada, Las Vegas

Further reading:
http://www.lvre.com/las-vegas-real-estate/