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.
Source: Center for Business and Economic Research University of Nevada, Las Vegas
Further reading:
http://www.lvre.com/las-vegas-real-estate/
