Welcome to 2024. Following three years of economic extremes, from historic high unemployment and business lockdowns to the pandemic-caused bust and stimulus-caused boom, it’s been a ride.
The Governor’s Economic Advisory Council, launched in tumultuous 2020, is lead by Bob Potts, deputy director, Governor’s Office of Economic Development (GOED). The council collects data from regional, tax, labor, and tourism economists, and university and executive branch economists.
“If you were to summarize everything down to one statement it would be expectation for growth to continue leveling off in 2024 without turning negative,” said Potts.
John Restrepo, principal, RCG Economics, concurs. “We don’t anticipate any recession or downturn in 2024, but we do anticipate a slowing of growth. Job growth is going to slow. We think the population growth is going to slow, both in northern and southern Nevada, but more to long-term historical levels than anything dramatically bad.”
“The expectation going into 2024 is that the Nevada economy will remain relatively stable coming off of strong performances following the height of the pandemic,” said Brian Gordon, principal, Applied Analysis.
Northern Nevada should continue to thrive with continued diversification; southern Nevada will see major events, and major investments coming online. “That doesn’t mean that everything is going to look exactly like it does today,” Gordon added.
The Future
That’s the forecast – the background is tied to the national economy and Federal Reserve efforts to bring post-pandemic inflation under control through interest rate adjustments and meeting employment goals. “By raising the federal funds rate—the interest rate—they’ve been on a march for somewhere around 21 months to drive down inflation and the costs that all of us are facing,” said Potts.
“In the last 24 months, the nation as a whole, including Nevada, has experienced elevated consumer spending, partially as a result of pent-up demand because of the pandemic, partially as a result of stimulus funding flowing through the economy and partially due to shifts in consumer behavior and attitudes,” said Gordon. “The ability for consumers to continue to spend at the levels they have become accustomed to could be a challenge going forward.”
Coming off the COVID recession there’s been a significant amount of stimulus funds and private sector investments fueling the economy. It’s expected some of the economic activity associated with that, already slowing, will continue to slow given the increases in interest rates and the inability for some projects to ultimately pencil. “While financing major projects today may have the potential to stall out some activity, the results of today’s environment may not be felt for another 12 to 24 months into the future,” said Gordon.
“It’s all going to boil down to how deep the economic contraction goes and/or if and when it does go, but outside those national economic forces we’ve got some pretty insulating industries in the state that should continue to do well in 2024,” said Brian Bonnenfant, project manager, Center for Regional Studies, UNR.
Those industries include construction, information, mining and healthcare. It’s the industries more tied to discretionary spending, the leisure and hospitality market and entertainment along with the new focus on professional sports in southern Nevada, that are more tied to the economy and could be affected if a downturn impacts consumer spending.
Economists have been calling for a recession since 2018, but projections are not proof and predictions use data that can’t be controlled, like policy and the Fed adjusting interest rates.
“There’s been so much deep spending with the stimulus, that’s it’s really going to take a while to unravel that spending with the CHIPS Act and the Inflation Reduction Act,” said Bonnenfant. “A lot of that is government spending on public works, infrastructure. What we’re hearing locally from engineering firms is they’re very busy with projects that are government-based and that could well happen through 2024 and 2025. That will really push back on any kind of recession concerns with all that spending.” The CHIPS and Science Act of 2022 provides $280 billion toward semiconductor research, development, and production.
That said, October numbers showed cooling, with payroll reports about half what they generally were in prior months. There’s been cooling in new jobs and retail sales took a nationwide dip in October, the first drop since March 2023.
“Business continues to struggle to find qualified employees, and face the challenges of labor disputes, maneuvering supply chain disruptions, higher operating costs and elevated inflation,” said Cindy Creighton, president, Nevada Taxpayers Association. “Inflation has been trending lower, but most likely will remain above 2 percent in 2024. Economists predict the Federal Reserve will shock markets with aggressive 2024 interest rate cuts.”
“For 2024, I think steady as she goes in terms of how businesses continue to make rational choices in a world where interest rates and the cost of doing business, the cost of money, stay high for the foreseeable future,” said Andrew Woods, director, UNLV Center for Business & Economic Research. “We’ve been talking about this for over a year and we don’t see a recession.”
Woods expects 2024 to be interesting, especially if interest rates do what they’re supposed to do and cool demand without tipping the economy into a recession. As money and credit conditions become tighter, “We’re going to find out quickly, as Warren Buffet famously said, ‘Who’s swimming naked as the tide goes out.’ We’ll find out which businesses don’t have as sound of books or profitability as they seem to put out there to the public.”
The March 2023 bank failures were a preview, unique failures of individual banks, the consequences of which trickled throughout the industry.
The 2023 economy performed better than expected. Citigroup Economic Surprise Index, which indicates the difference between forecasts and reality over a year’s time, posted gloom and doom numbers for 2023 in Q4 2022 and the U.S. economy outperformed those expectations every quarter.
It’s now starting to soften, as people are no longer spending based on the $2.1 trillion in excess savings that came out of the pandemic stimulus funds.
“We’re actually starting to see credit card debt and starting to see people start to finance to purchase again,” said Potts. “So, things are slowing down but at least through 2024 nobody is really seeing this going negative.” That was always the Federal Reserve’s goal—a soft landing.
Employment
The Fed has two mandates. One is price stability, knocking down inflation. The other is full employment. Nationally there is full employment. In late November the U.S. unemployment rate was 3.8 percent. Nevada, however, stood at 5.4 percent. Nationwide, there’s still a struggle for businesses to find employees. Nevada’s 5.4 percent means there’s room for churn, opportunities for job seekers. Other labor markets are frozen, without workforce for hire, making it harder for businesses to expand.
Industry Strong
Existing Nevada industries that should continue strong in 2024 include the continued expansion of healthcare, the resort industry provided discretionary spending doesn’t drop, and continued expansion of healthcare and advanced manufacturing in the north.
“It’s too early to tell whether things like battery manufacturing for electric vehicles and lithium mining, the green energy initiatives will be panning out in 2024,” said Restrepo. Those are seen as more long-term changes. Shorter term, Restrepo expects expansion of healthcare and private universities and colleges. In southern Nevada the hotel industry will continue to expand at a slower rate, and so will logistics in both northern and southern Nevada.
“Logistics is slowing down, but there’s still a demand because of the cost of doing business in California,” said Restrepo. There’s been a downturn in online shopping as consumer debt loads increase, and people start returning to brick and mortar shopping. Car buying has slowed online and off.
In March 2023, GOED released a 5-year economic development strategic plan that takes into account pandemic changes to how industries function, consumer behavior, and Nevada’s economic strengths: natural resources, the lithium loop/clean energy drive and proximity to the fifth largest economy in the world, California.
The GOED plan identifies three industry areas. Connected Nevada has everything to do with transportation, logistics and warehousing, and proximity to California.
“All these online consumer behaviors completely changed how we did things, how we did so much on the entertainment side, streaming movies, that sort of thing, and Nevada really gained,” said Potts. “From some of those changes, we see just the volume that we have, and we happen to be in a very good place for that.” Nevada was ready-made for consumers to embrace shopping online for everything.
Electric Nevada is largely concerned with Nevada’s Lithium Loop. The enormous deposit of the critical mineral located on the Nevada/Oregon border puts Nevada in the forefront of clean energy production and storage as it builds a full lithium cycle including mining, processing, manufacturing, and recycling.
Innovative Nevada is largely the innovation and entrepreneurial startups in the realm of clean energy. Nevada has not gone unnoticed by the Feds, and there are grants bringing money into the state in the field of clean energy.
There is one last industry shift. As advanced manufacturing matures in northern Nevada, hiring is slowing, causing economic development authorities to switch focus to headquarter businesses and life science industries to compliment the current suite of industries.
Tax
The 2023 legislative session saw more proposals for exemptions and waivers than for new taxes. “There were all kinds of bills put forth to exempt a business tax or a property tax, for a veteran, a Purple Heart, child of a Purple Heart, low income—there was a lot of those issues out there,” said Creighton. One proposed bill would remove sales tax from diapers. Because county sales taxes include 2 percent state sales tax, changes to sales tax require a vote by the people.
SB452 changed allocations of the Government Service Tax from 75 percent to the State Highway Fund, 25 percent to the State General Fund, making it 100 percent to the Highway Fund. The move is an attempt to shore up highway funds because between more fuel-efficient cars and people working from home and driving less, revenue for roads is dwindling.
In 2024 mining and cannabis taxes should be delivered 100 percent to the State Education Fund. Those aren’t new taxes, just new allocations.
“The Governor kept his campaign promise and vetoed any new taxes, ” said Bonnenfant. “My fear moving forward is if we do get economic contraction and we’ve spent so much on all these services and programs, what happens when the money falls short?”
Because then it will fall to the state to continue funding or cut the programs.
Education
“The other industry that is probably going to be resilient continuing to go forward is government services,” said Woods. Not because there’s more demand, but because there’s a need to make up for hiring that hasn’t happened in public and higher education. Education is the pipeline to workforce.
There’s a move to direct more funds to public education in Nevada, but after a record number of tax dollars was transferred to education under Governor Lombardo, Nevada is still 28th in the nation for per pupil funding. The only new money supporting education in 2023 was essentially conducted by the Governor through the legislative process, approving $11 billion for K-12 spending over the next several years.
“Those funds don’t specifically support higher education,” said Byron Brooks, chair, Nevada System of Higher Education. “But it could support the education of those in K-12 seeking higher education as they graduate and perhaps the education they’re receiving in K-12 classrooms.” That support should make applying to universities or colleges easier to navigate.
Real Estate
“Shifts in the housing market are playing a role in homeowners’ mindsets and how they view their overall wealth profile,” said Gordon. “As home prices have flattened and declined, homeowners don’t feel as flush as they once did. So, it’s somewhat of a psychological impact as homeowners have seen the growth in their equity stall or shrink.”
Since the pandemic and resulting supply chain disruptions, real estate, both commercial and residential, has become much more expensive, from labor to materials to purchases. The new home supply has slowed significantly in northern Nevada, due to costs and lingering effects of the Great Recession. Which has created an opportunity for aggressive apartment construction in the region, making the best use of available land and offering marginally less expensive rates.
“I’ve been hearing from a lot of communities across the nation for two or three years that banks are no longer funding apartment construction,” said Bonnenfant. “But we continue to see that’s the product coming to the market, and that’s because of the affordability issue.”
Demand continues for commercial real estate (CRE) industrial product. “With tremendous [consumer] shift to online purchasing, the warehouse and distribution sector has been expanding at a record pace over the past few years,” said Gordon. “The sector has outperformed its office and retail counterparts.” Office and retail simply haven’t seen the same level of expansion as industrial in recent years.
Vacancies continue to dwindle in all three sectors and demand remains positive. Prices remain affordable relative to other major markets within the region.
Heightened interest rates affecting valuations of properties and the ability to acquire them is impacting investors. Transactions continue to occur, but not at the robust pace set in early 2023.
“Commercial real estate is going through a major fluctuation with $900 billion in commercial real estate debt that has to be refinanced in the next couple years, so we’re already seeing $80 billion in distress, and that’s up from $64 billion a couple months ago,” said Bonnenfant. Much of the distressed CRE is office product, followed by retail and hotel.
New Ways to Entertain
Diversified economy or not, Vegas is still the entertainment capital of the world, and currently it’s garnering substantial attention related to special events.
“It’s not only blockbusters like Formula 1 but other special events are seeking out Las Vegas and the related visitor activity that comes along with those events,” said Gordon. “There are also a number of notable construction projects that have either recently come online or are expected to come to market in the near term.”
Those include the buzz around The Sphere, and projects like Durango bringing a new player to the locals’ casino market.
From a case study standpoint, economists say pro sports is a great enhancement, elevating quality of life for residents and adding recreational choices for visitors.
“The question is, is pro sports a driver of economic development, economic sustainability, and economic resilience?” said Restrepo. The general consensus of analysts is not unless the pro sports team is accompanied by other portions of its supply chain, which might include a sports medicine specialty at Nevada medical schools, or manufacturers of sports equipment. “If pro sports brings those types of supply chain enhancements or ancillary economic activities—healthcare, manufacturing, maybe even logistics—then you’re talking about an industry that does improve resilience and sustainability of the economy.”
There’s concern now that people are starting to back into debt, said Potts. There’s concern about focusing on industries that aren’t super resilient. Diversifying the economy with events and sports is great. “I don’t want [diversification] to happen at the expense of doing the long-term work [such as] building out the industrial parks, building out sustainability and resilience for the long game.”
During the pandemic the procyclicality of the economy wasn’t near the issue in Northern Nevada that it was in Southern Nevada.
“That hasn’t fully changed yet,” said Potts. “There’s opportunity to do just that because of the natural change in the mix of industries, to take advantage of the wind at our back and say wow, [the economy] wants to do this. All we need to do is help it along. I think it’s hard to go out and do a hard day’s work sometimes when there’s dessert on the menu.”
