Business leaders across Nevada are saying they expect 2011 to be slightly better than 2010, which should thrill absolutely no one.
Still, better is… better.
Viewed from a variety of perspectives – employment, tourism, real estate, gaming, retail and more — our state’s economic outlook could be worse, and in fact may already have taken its initial steps on the road to recovery.
“We are looking for ’11 to be better than ‘10, which really isn’t saying a whole lot,” says Jeremy Aguero, Principal Analyst with Applied Analysis in Las Vegas. “But what we’re really looking for is an extension to what we’ve seen during the second half of 2010, which is stability and even some degree of improvement in the underlying statistics.”
“I think 2011 is going to be a lot like 2010,” agrees Brad Schnepf, president of Las Vegas-based developer Marnell Properties. “I don’t think we’re going to see too many new projects announced. Businesses aren’t, generally speaking, in a growth pattern, where there is going to be demand for new space or even existing space.” Thus, for the year to come the focus will remain on filling up and leasing out existing inventory.
Though Schnepf says he sees no surprises on his radar screen, a lot was hinging on the election. “There were a lot of lenders and business people waiting in order to determine how they’re going to approach this business model going forward.”
Stabilization
The year to come, according to Aguero, will be largely about finding stabilization. “We started to see some of that emerge during the second half of 2010, which I think is incredibly encouraging. We had increased stabilization in the number of employees even though our unemployment rate continues to escalate. We have seen escalation in our visitor statistics as far as visitor volume and gross gaming revenue, average daily room rate and even RevPAR (Revenue Per Available Room).”
Applied Analysis has also seen stability in the prices for gaming companies in terms of equities, as well as some restructuring going on, he notes. “We’ve also seen some preliminary glimpses of improvement in consumer attitudes; that is to say, the taxable retail sales last month were actually up by a fair amount for the first time since August 2008.”
Aguero believes what’s important is that these are “things that, if you and I had a conversation about a year ago, did not exist. Now that doesn’t mean, and it shouldn’t be interpreted — and I certainly wouldn’t want to suggest — that we’re out of the woods by any stretch of the imagination. But what it does mean is that we’re starting to see some increased stability in those statistics.” He expects to see added stability in employment statistics “and possibly even growth even as the state continues to shed some construction jobs.”
Jobs
Employment in general in 2011 should be better. “It will be growing,” predicts Stephen Brown, director of the UNLV Center for Business & Economic Research. “Probably the unemployment rate will begin declining in 2011. Some of that is going to be out-migration because when construction picks up elsewhere people in the construction industry will take off for jobs elsewhere in the country.”
According to Bill Anderson, chief economist for the Nevada Department of Employment, Training and Rehabilitation (DETR), Nevada’s unemployment rate held steady at 14.4% in September, the first time since January that the rate failed to increase, and only the second time the rate did not increase since the recession began. Since January, the unemployment rate increased 1.4 percentage points, but it has grown just two-tenths in the last three months, he added.
According to DETR figures released in late October, unemployment rates in each metropolitan area increased from August to September. The unemployment rate in the Las Vegas-Paradise area jumped three-tenths, reaching 15 percent. The rate sets a new all time high for the State’s largest labor market.
In the Reno-Sparks area, DETR reported, the rate of joblessness rose by two-tenths, equaling the previous record high of 13.6 percent.
Carson City’s unemployment rate hit 13.4 percent, rising three-tenths from the previous month.
The unemployment rate in the Elko region (both Elko and Eureka counties) rose by three-tenths, to 7.9 percent.
(Unemployment rates for the state’s metropolitan areas are not adjusted for seasonality. For comparison purposes, the state’s unadjusted unemployment rate was 14.5 percent in September, up from 14.2 percent in August.)
Recently released employment projections show considerable job loss through 2011, DETR reported. In 2012, job loss will “subside significantly, but a weak economic climate will keep outright growth in check.” Not until 2013 will the state see “broad employment growth.” Even then, the group noted, expectations are for “weak employment growth at best. The recovery will most certainly differ from typical rebounds, but this recession has been anything but typical.”
Following recent recessions, Nevada’s economy boomed, driven by new growth and construction. Given its current state of high home foreclosures, falling prices and weak demand for new commercial development, new construction “will not stimulate growth across the broader economy anytime soon,” DETR predicted.
“In recent months, growth in unemployment has begun to subside, suggesting some stabilization,” said Anderson. Total non-farm employment increased by 2,900 in September, primarily in response to the return of seasonal workers in Nevada’s educational system. The private sector, however, “failed to find traction,” losing 4,600 jobs over the month, he added.
As for the hotel/casinos where so many jobs have been lost, Aguero points out that visitor volume has started to creep back up, placing an increased demand on the remaining employees. “At its peak the number of hotel/gaming employees per hotel room was 1.4-to-1, or 1.4 hotel employees for every one hotel room.” A couple of months ago, that figure dropped below one, which he calls “incredibly low.” But over the past three months that number has started to creep back up.
Also deserving of close scrutiny during 2011 is the average hours worked per employee. “This is an incredibly important statistic,” says Aguero, “because typically a business will give its employees their hours back before they hire new employees. It’s something we’ve seen nationally -– hours worked per employee is increasing. We haven’t seen anything sustained throughout the state of Nevada with regard to the same statistic, but that’s what we’re going to be keeping a really close eye on.”
Visiting Vegas
Through August, Las Vegas has experienced 12 consecutive months of increased visitation compared to the previous year, and six straight months of increases in the average daily room rate, notes Kevin Bagger, senior director of marketing for the Las Vegas Convention and Visitors Authority. “By themselves, the individual metrics reflect improvement within the industry and further market stabilization, but there is still more work to do.”
Visitors remain cautious with their spending, Bagger points out, and various economic indicators “remain volatile.” Still, there are some encouraging signs looking forward.
“We project a three percent increase in visitation for the year in 2010 compared to 2009,” Bagger says. “The meeting and convention industry also is showing signs of improvement through the fourth quarter, and a preliminary analysis indicates an improving 2011.”
“A number of economic indicators important to Nevada’s fortunes have been showing signs of life in recent months” Anderson said. “At the national level, personal income has improved, increasing nearly every month this year. Even in Nevada, incomes have seen growth.” The question remains when, and by how much, will income growth translate to improvements in Nevada’s tourism based economy? “That translation has a lot to do with consumers’ willingness and ability to pay for a trip to Nevada. While it’s still early, we may be seeing some tentative signs of improvement.”
Visitation to Las Vegas has increased nearly every month in the last year, DETR found. Along with that, recent months have seen both taxable sales and gaming wins recorded large over-the-year gains. In July, taxable sales surged 5.3 percent driven by activity in food-and-beverage service and hotel accommodation. In August, gaming collections increased 11.5 percent.
“It’s just the third increase since the start of the recession,” Anderson noted. “While one month does not a trend make, following years of dismal tax collections, recent reports are a step in the right direction.”
In all, the recession continues to take its toll on Nevada’s tourism and growth based economy. “For the most part, Nevada’s employers had a rough September regardless of their industry type,” Anderson said. “Employment declined in all private sector industry groups except professional and business services, which added 400 jobs, and manufacturing which held steady.”
Gaming Recovers
Insiders are betting on gaming.
“My expectation is that we will say that gaming began its recovery in 2010,” suggests Brown. “We will probably date the recovery in gaming from July or August. As the U.S. economy continues to grow we will see a continuation of growth in the hospitality and gaming industries that I would expect to continue into 2011.”
Brown is quick to point out that he isn’t looking for what he terms “rip-roaring” growth given the slowness with which the U.S. economy is recovering. “But I think there will be growth, and we could be seeing it in the neighborhood of 3 to 5 percent in the gaming industry.”
Beyond gaming, Brown expects the mining areas of the state to continue to do well, “particularly since so many commodity prices have been elevated in the recovery.”
Dennis Smith, president of Home Builders Research, Inc., says many Nevadans remain on the fence as to whether or not they are going to sell their houses and leave. “That has to be addressed.” There is, he adds, no “magic wand or any king who has been put in place who can all at once change things for the better or worse without going through the ‘normal process,’ which means you’ve got to go through the banks. The banks don’t change anything quickly.”
His advice remains to, “buckle down and get through this year just like you did last year – those of us who got through it – and know that better times are on the horizon, the horizon being out there a ways.” He agrees with Brown that the economy may only have completed the second year of a five-year cycle.
Real Estate
While both the housing and commercial real estate sector should continue to remain flat through 2011, Brown adds that the retail sector will come back, “particularly in Las Vegas and on the Strip because it is tied to tourism.” Except for a few stores here or there, where there might be mismanagement or an inability to have weathered the recession, 2011 will see growth of stores. Outside that sphere, however, retail is going to remain “bumpy.” In fact, off the Strip he would not be surprised to find more shuttered stores.
“One of the difficulties for start-ups in this recovery is that a lot of the financing for small business comes from home equity, and there isn’t a lot of home equity,” Brown reasons. “That is going to remain an obstacle to start-ups. Nevertheless, I think it’s possible that we may see some related to either biotechnology or solar energy.”
Smith also expects 2011 to be eerily like 2010. “I don’t see any reason to expect anything much better.” He is looking for “a long, drawn-out continuation of what we’ve just been through. And if anybody tells you differently, I’d like to find out what they’re smoking. I don’t see any reason to think that’s going to change.”
“What,” Smith asks, “is on the horizon that makes you think that anything is going to improve significantly? Are there jobs being created? No. Is everyone, all at once, going to get a huge welfare check that is going to take them out of their recession? No. Is the number of foreclosures going to recede? No. Are prices going to go up? No.
“Let’s be realistic,” Smith concludes. “The good thing is that it doesn’t seem to be getting any worse.” To those who would point out that the unemployment rate just went up, he responds that the unemployment rate “lags three months at least, and then they go in and adjust it.”
In the last six months the number of sales of single-family residences (SFRs) in the Las Vegas Valley has increased approximately 15 percent, according to Di Redman, corporate broker/owner of Windermere Anthem Hills in Henderson. “This is good news in the fact that properties are moving.”
Prices of the SFR homes are not increasing significantly, however. The increases were small, averaging 4 percent, “but a welcome change,” Redman adds. “This indicates that some neighborhoods are selling, while others have a ways to go.” In addition, over the last six months, 43 percent of SFR sales were in cash. Las Vegas, she says, is “a good investment according to this statistic. While interest rates and prices for buyers are good, many people still have difficulty getting a loan.”
In the last six months, according to Redman, the number of foreclosures sold was down but short sales were up. The market still shows approximately 72 percent of the single-family residences sold are distressed deals, through short sales or foreclosures. The forecast for 2011 looks “promising” for residential real estate sales. The biggest factors will be what the banks decide to do with the properties in default now and those that will be in default in the next year. “Many homes are under water and homeowners will have to make tough decisions.”
Retail
“We’re hoping that it’s going to start improving a little bit,” notes Mary Lau, president and CEO of the Retail Association of Nevada in Carson City. “Right now, with Congress being in such disarray it’s hard to pinpoint where things are going and where the consumer confidence level is going to go.”
That said, Lau continues, “there is going to be some more hiring towards the holiday.” The concern, however, is that it will turn out to consist of simply extended hours for people who are already working part-time.
Much of how the next few months play out is going to depend on Congress “as far as tax cuts go,” says Lau, “and with the Social Security being frozen again. It’s almost as if people are shriveling in again on their spending.”
Put it all together and the message for retailers is that they can look forward to “a gradual healing of this economy,” says Lau. Federal Reserve Chairman Ben Bernanke has given “some indication that he may have to take some additional steps. So it’s like, okay, now you’ve got everybody watching instead of taking action. Every time they start talking about this stuff, things just start compacting again,” Lau adds.
Back at the beginning of the current economic morass, Lau recalls, it was predicted it would take until 2011 or 2012 to start coming out of the doldrums. “So it’s been accurate in the very conservative circle – conservative economically. Economists said it was going to take this long to rebuild; we’ve seen that ‘Y’ on the economic charts instead of that ‘V’, where it drops down and then goes back up. It’s been a scattered recovery, and I think that’s what we’re going to continue to see.”
Geography
No one is expecting recovery to sweep evenly across the state map.
Schnepf, who also serves as chapter president of NAIOP, the Commercial Real Estate Development Association, says there will be some sub-markets in Southern Nevada that will remain strong and show potential for growth. He is also of the opinion that the commercial real estate market has hit the bottom. “The good news is that the free-fall we experienced in 2009 and a little bit in 2010 in terms of devaluation of product and vacancy is over. We can take a deep breath and say, ‘Okay, we’ll take a look now.’”
The Reno-Sparks Convention and Visitors Authority (RSCVA) remains cautiously optimistic when looking ahead to 2011, according to President and CEO Ellen Oppenheim. The group has seen increased investment and redevelopment in the destination as well as “remarkable growth in flights from the Reno-Tahoe International Airport.”
The RSCVA reports that the past seven out of nine months have shown gains over the previous year’s period in total hotel lodging gross receipts. “This represents a gain in both hotel occupancy and in rate,” says Oppenheim. “This positive trend is a sign that the region is beginning to recover from the current recession.”
More good news, Oppenheim continues, is that during “one of the worst economic times in the nation’s history” the Reno-Tahoe International Airport is recovering flights faster than any other medium or large hub airport in the country, according to statistics compiled by the Air Transportation Association. The airport ranks as the top airport in the nation in the percentage of flights added since the third quarter of 2009.
Construction-related activity remains a concern. In Southern Nevada, says Aguero, look for more projects to fall by the wayside. “Certainly during 2011 you’ll have a little bit of a shot in the arm in Northern Nevada because you have a legislative session going on, which gets some additional people back to work, stimulates businesses, and increases spending in things like restaurants and the like. It should provide some additional push for places like Carson City and even in and around the greater Reno area.” In Southern Nevada, he continues, Applied Analysis is looking for an up-tick in tourism.
Bottom line: for 2011, think 2010 – only slightly better.
