“Before March 2020, Nevada led the country in producing new jobs,” said Jonas Peterson, president and CEO, Las Vegas Global Economic Alliance (LVGEA). “Our economic development plan was working, and our economy was consistently becoming more diverse.” Across the state, manufacturing, logistics, distribution, technology and healthcare sectors were growing. In February, Nevada’s unemployment rate was 3.6 percent.
In March, everything changed. Overnight all nonessential businesses closed in response to the COVID-19 pandemic. In April, Nevada’s unemployment rate hit 30.1 percent, an all-time high. After a decade of diversification efforts following the Great Recession, the pandemic tested those efforts severely.
Economic development authorities changed focus from recruiting new companies to Nevada, to supporting existing companies, helping them navigate federal and state stimulus programs and interpret directives from the governor’s office.
In September Nevada began to pull out of the downturn. Unemployment dropped to 14 percent, which had been the peak during the Great Recession.
“We still have a long way to go. Now more than ever we need an aggressive strategy for new job creation. If we can be aggressive, we can bounce back pretty quickly,” said Peterson.
Regional Focus, Statewide Results
“What the state is doing and what we’re doing in Northern Nevada are not necessarily the same thing,” said Mike Kazmierski, president and CEO, Economic Development Authority of Western Nevada (EDAWN). “Certainly economic development is important throughout the state and every region has different resources and motivations.”
Nine years ago EDAWN shifted from gaming and tourism as the region’s primary economic driver post-recession. “We changed our focus to reinvent our economy and addressed what we saw was a real opportunity in advanced manufacturing and data centers, and continued growing logistics and distribution by expanding ecommerce.”
Nevada’s statewide focus shifted to add to gaming and tourism, rather than a shift away from the industry.
“Obviously there was a big change to the state’s economic development and diversification policies during the Sandoval administration,” said Jeremy Aguero, president, Applied Analysis. As the state emerged from the recession, the Governor’s Office of Economic Development (GOED) was created, and there was a heavy focus on both economic development and diversification.
“It was a long recovery, but it was very successful,” said Bob Potts, deputy director, GOED. Nevada began to top lists in terms of growth, jobs created and total personal income.
Around that time GOED contracted with Brookings Mountain West and SRI International to create an economic roadmap for the economy. The report identified seven industry sectors that both fit the state’s existing economy and expanded and diversified it.
In 2018, Nevada again contracted with SRI and Brookings to create a new assessment to be used as the basis for a five year strategic plan. As opposed to 2011, unemployment stood at 4.7 percent in January. It was a different economy. Economic development and diversification efforts statewide were working. LVGEA was seeing consistent growth in job creation and capital investment, said Peterson.
“Then COVID-19 hit and everything had to pivot,” said Potts.
Economic Pandemic
“During the Great Recession in Nevada we lost over 200,000 jobs over a two and a half year period,” said Aguero. “During the start of the COVID-19 crisis we lost 280,000 jobs in two months.”
Those are daunting numbers. A recent Applied Analysis survey of 2,600 businesses showed more than 70 percent indicated they’d been materially impacted by the pandemic. Where 70 percent surveyed began 2020 expecting to grow, they now expected a decline in revenue for 2020.
“The virus was an act of nature we had to deal with and we’re still dealing with. We really pivoted what we were doing in economic development at the time to deal with the crisis,” said Potts.
Economic development is defined as the creation of an environment where businesses that make up the economy of a city or state can thrive and grow. When economic authorities pivoted to address the downturn, it was to help businesses figure out Small Business Administration (SBA) loans and navigate grants and CARES Act monies. They also sought to understand how directives from the Governor’s Office affected them.
At the same time, regional development authorities continued to work with companies interested in locating in Nevada, planning ahead for the economic bounce back.
“Having folks on the team who really understand how economies work, particularly in their functional areas, is critically important as we tried to navigate the right decisions and polices moving forward in the recovery,” said Potts. Looking to provide as much support and resources as possible to people in Nevada businesses, GOED continues working closely with the Treasurer’s office, the Department of Education and the Nevada System of Higher Education, helping address and mitigate as much damage as possible because of the downturns, said Potts.
Diversify
Economic diversification is a shift from a limited number of economic sectors in an economy to a more varied structure to reduce economic reliance on too few industries.
Nevada has been addressing diversification for decades, with increased emphasis during the last 10 years. As a result of those efforts, not every industry experienced the same downturn with the shutdown. Retail, restaurants and casinos were hit hard. Nonessential gaming and tourism businesses shuttered and reopened slowly. Regional economies based on industries with use of automation and technology, or agriculture and mining companies continued to perform better than those based on gaming and tourism. Not all regions were impacted the same.
“We know obviously southern Nevada has been especially hit hard because discretionary spending dries up whenever there’s a downturn like this,” said Potts. “This was like a one-two punch because of proximity of people, and the communicability of the virus to try and stay in front of that and keep people safe first, and then address how we’re going to address all the economic fallout that we’re dealing with.”
As diversification became the watchword, EDAWN pushed for e-commerce companies, which flourished during the pandemic as online ordering and no-contact deliveries skyrocketed. EDAWN also pushed for advanced manufacturing.
“We knew we would continue to be successful with logistics and distribution because of our strategic location, so we really pushed for advanced manufacturing and data centers,” said Kazmierski. There was a lot of early success and by the time Tesla looked at northern Nevada there were nearly 40 advanced manufacturing companies in place.
Just because different regions have different economic focuses doesn’t mean industries don’t blur over regional development authority lines. Northern Nevada Development Authority (NNDA) oversees Carson City, Lyon, Douglas and Storey counties, and their focus is heavily toward advanced manufacturing. Their metro area is smaller than EDAWN’s and they don’t have as much industrial land. Smaller manufacturers tend to locate there. NNDA also has a history of manufacturing in their community, where for EDAWN, it’s new to the mix.
NNDA’s economic base is comprised of agriculture, mining, manufacturing, logistics and big tech, most of which were deemed essential and remained open during the shutdown.
“When you bring in primary dollars like that, it supports the growth of secondary dollar merchants, like retail Main Street people and service industries. That’s the way the economy works, right?” asked Rob Hooper, president and CEO, NNDA. “We’re seeing the incoming dollars into the region exceed the outflow, so our region is growing. And yes, we’re focused on diversity, we have been for a long time.”
NNDA’s region is considered a production economy, producing and sending out more freight than it brings in. “That protects us from these types of shutdowns,” said Hooper.
Economic development and diversification operates in the background for most people; they’re not aware of it until there’s an economic upheaval. “It seems like when we go through [a downturn] it becomes more important to other folks,” said Jeff Brigger, director of business development, NV Energy. “But for the development authorities, and for us, it’s always important. We’re seeing impacts of that in southern Nevada more than we are in the north because of the heavy dependence on gaming and tourism in the south.”
Southern Nevada before and during the downturn experienced an uptick in e-commerce and logistics-related operations. Typically located in northern Nevada, those types of companies were welcomed. The data center industry is also eyeing both southern and northern Nevada.
NV Energy’s economic development department created a database of 2,000 to 3,000 prospect companies that might relocate to Nevada. During the downturn they ramped up engagement with prospects, creating industry-specific marketing packages including site, utilities and workforce information.
One industry every region wants is advanced manufacturing. It’s heavy with robotics, coding and engineering. When Tesla chose to locate in northern Nevada the attention on the region brought in other advanced manufacturing companies which created a base of technology companies. When the pandemic prevented corporate scouts from flying to distant locations, northern Nevada saw an uptick in interest from California tech companies that could easily drive from Bay Area locations.
Pandemic aside, some industries are desirable because the ultimate goal is to raise wages in the region. Logistics, distribution and e-commerce are good jobs, but advanced manufacturing jobs pay in the $30/hour range, and jobs in technology can pay more than $100,000 annually.
Bounce Back
In 2018, GOED assembled a quantitative and qualitative assessment of Nevada’s economy, with data on which industries are growing and how fast. The assessment also showed which regions are growing differently and economic data on job and income numbers, taxable sales, and gross regional product.
The assessment provided a comprehensive data matrix, said Potts. The qualitative side included 140 focus groups of stakeholders, both public and private, discussing their regions. The assessment is critically important as Nevada’s economy looks for yet another new normal.
“We dropped off about one-third of our employment,” said Potts. “That varies by region. We knew when we started opening the economy back up, based on what the health situation looked like – caseloads, hospitalizations, positivity, those kinds of things – and people start going back to work, commerce will start happening again. But, how fast, and what does that bounce back look like?”
Everybody talks about the shape of recovery, Potts said, but nobody really knows what it’s going to look like. There are considerations businesses and industries never had to deal with before, how to manage risk, how to keep customers safe, how to keep people spaced apart.
Which means commerce can only get back to a certain level, and not every displaced worker is returning to the job they were displaced from. In September, Nevada was down 150,000 jobs below pre-COVID levels. The question was, were those 150,000 people returning to work, and to the same job, reskilling for something new, or becoming part of long term unemployment statistics?
There is light at the end of the economic tunnel. Not every industry suffered the same amount from the downturn. Retail, restaurants, travel and gaming were significantly impacted, but other industries like distribution centers and delivery services grew.
Some businesses will fit better into the post-COVID landscape than others. Peterson expects to see opportunities to dramatically improve Nevada’s economy by recruiting companies that need to be more cost competitive and locate in a more business friendly environment than they’re currently operating in.
“We’re hearing some rumblings from the Fed that there could be incentives for onshoring,” said Brigger. The practice of bringing back companies previously moved offshore is gaining ground after disrupted supply chains during the pandemic showed how problematic it can be having companies like pharmaceuticals located out of the country.
An overall look at the numbers alone in September didn’t show Nevada’s economy in completely dire straits. According to Potts, June taxable sales numbers weren’t as bad as might be expected, and those numbers closed out the fiscal year. June taxable sales showed a downturn of about 2 percent, or 1.9 in aggregate.
“But if you look underneath those taxable sales numbers there are some big swings, big double digit swings both negative and positive,” said Potts. “The negative are the ones that tend to be very high customer contact [businesses], restaurants and bars and casinos, that sort of thing, if we’re just talking about taxable sales.”
It’s worth noting that the real impact of COVID-19 on Nevada’s economy may not be being felt yet. Since the start of the pandemic and economic downturn, $2.3 trillion worth of stimulus money has flowed into the U.S., buoying the economy, said Aguero.
“Almost $19 billion has flowed into the state of Nevada, including paycheck protection programs that have benefitted tens of thousands of businesses and hundreds of thousands of employees, to say nothing of unemployment insurance benefits and direct payments to individuals,” said Aguero. All of which are keeping the economy afloat, but also masking some of the economic challenges created by COVID-19.
Industries experiencing double digit growth like technology and delivery businesses offset the numbers so in the aggregate taxable sales numbers don’t look that bad.
What the numbers don’t take into account are retail stores that may have been struggling before the pandemic and now need to decide how to retool. Technology will probably play a role, as it has for a lot of industries, and will for a lot of workers.
Because the numbers also don’t consider Nevada workers who may find themselves permanently displaced by automation.
“We’ve seen even before this pandemic where there were properties buying machines that fix drinks,” said Potts. “Machines don’t get sick, right? But you’re going to need folks who know how to program them, that know how to operate the machines, how to manufacture them, so workers need to start thinking in those terms, what are those opportunities? What [this pandemic] has done is accelerated, what we call, Industry 4.0.”
The “Fourth Industrial Revolution”, the merging of man and machine into the same workplace, is leading to increased automation and the need for Nevada’s workforce to reskill.
Workers laid off because the business they worked for didn’t survive the downturn or because their position has been automated, make up the workforce regional development authority’s are hoping will reskill.
“It will take a concerted effort by the region, the state and our educational institutions to upskill or retrain existing workers so they can fill these higher paying jobs coming into our region,” said Kazmierski.
Recovery is going to require aggressive economic development, Peterson said, which means that economic development teams need to have the tools and resources to recruit businesses to Nevada and assist existing businesses.
It also means the community needs to come behind economic development with the new push, Peterson said. As Brigger pointed out, economic development authorities are always working, but it isn’t until there’s a downturn that there’s a general awareness of them.
“What we’ve learned is it takes the private sector, education leaders, and public sector leaders all working together if we’re going to do economic development right,” said Peterson.
Nevada’s economy has historically been procyclical, positively correlated with the overall state of the economy. Nevada has historically had higher highs and lower lows, said Potts. “The goal of diversification starts taking the amplitude out of that cycle so our lows and our highs more correlate to coincide with what national business trends look like. That’s what diversification does for you.”
