February 2020: Nevada’s economy was at a peak. Unemployment stood at 3.6 percent. The state led the nation in new job creation.
March 2020: Governor Sisolak ordered all nonessential businesses to close and Nevada entered the worst recession since 2008. In two months, 280,000 Nevadans lost jobs.
The COVID-19 recession was a faster, larger drop than the Great Recession, said Stephen Miller, director, Center for Business and Economic Research (CBER) at UNLV. Recovery started much faster because it’s not a typical recession, but one caused by the pandemic and, ultimately, the stay-at-home orders.
The 2020 recession highlighted differences in Nevada’s economies. For example, from the statewide high of 30.1 percent unemployment in April, northern Nevada was one point below the national average of 7.6 percent in October. Southern Nevada still stood at 13 percent.
The fact that the state was already in recovery leads some experts to predict this would be one of the shortest recessions on record. Looking ahead to 2021, economists predict the rollout of the COVID-19 vaccine will lift quarantine orders and instill consumer confidence.
In December, recovery was already underway, even before the vaccine was released. Economic variables like gaming revenue, visitor volume, hotel occupancy rates, taxable sales and employment were back to about 50 percent of the February peak, said Miller.
“So we fell off an [economic] cliff and then recovered about 50 percent of that, more in some areas and less in others,” said Miller.
“I think it will be the flip of a switch once the vaccine hits the general public,” said Brian Bonnenfant, project manager, Center for Regional Studies at UNR. “You’re going to start seeing some really strong growth numbers.”
Bonnenfant predicts growth will come from Nevadans released from quarantine who are looking for entertainment, rather than from government policies or programs. That said, “We definitely need another stimulus package or two to get us to that April, May mark of the general public vaccination efforts.” He expects 2021 to start like 2020 ended, but once vaccination programs are in place, numbers should shoot upwards.
The size and shape of recovery is uncertain. Some economists don’t expect any kind of resolution until 2024. Others anticipate economic normalcy by some time in 2022. All of them expect the COVID-19 vaccine to be a game changer. The consensus seems to be that the forecast for 2021 is better than 2020 – but not there yet.
Recovery Unknowns
Possibly the biggest factor in reversing the 2020 downturn will be the rollout of the COVID-19 vaccine. With healthcare workers and vulnerable populations first in line, the general population probably won’t be vaccinated until midyear. There are plenty of unknowns, like the number of people who will take it, the effectiveness and how long the vaccine is good for – three months, three years or thirty? Which leaves plenty of unknowns about recovery, both economic and human.
“It’s complicated,” explained John Restrepo, principal, RCG Economics. “We’re really not going to see a recovery to historical growth rates and indicators until probably 2024. I think we’re going to continue to have a rough 2021. It will be better than 2020, and 2022 and 2023 will be a rebuilding period.” Vaccine distribution and effectiveness will impact the recovery timeline.
Jeremy Aguero, principal analyst, Applied Analysis, expects three phases of economic recovery. Through February or March, escalating COVID-19 cases combined with reduced levels of stimulus and the traditionally slow period for Nevada’s tourism industry means a difficult three months.
“After that I think we’re going to enter a new phase from an economic standpoint where early release of the vaccine is going to have a greater effect on our economic condition,” said Aguero.
A successful vaccine rollout should increase capacity in the healthcare system by protecting core workers. That’s one of the critical markers for allowing the economy to remain open, and with fewer complications than seen at the end of 2020. Aguero expects that phase to last around six months, followed by 18 months of significant economic recovery as consumers go back to normal and more contact-intense businesses like hotels, casinos, salons, and barbershops can open.
It will take longer for conventions and major special events to return to southern Nevada and for international travel to return to the state.
The COVID-19 vaccine may be a game changer, but the recession won’t end just because there’s a vaccine. “It’s going to take some time for businesses to recover and stabilize recovery. It’s going to take some time for the supply chain to get back on track and I think we’re going to be dealing with that for the better part of the year, to the latter end of 2021 and probably most of 2022,” said Aguero.
Employment
April’s historic 30.1 percent unemployment rate began to fall when business closure orders began to lift. Aguero predicted one-third of employees would be back to work instantly and another third as the economy stabilizes. But the third group is apt to be dealing with a 70 to 80 percent economy for the better part of the year, at least in southern Nevada. The COVID-19 recession shows the marked difference between Nevada metro areas.
“Northern Nevada is recovering at a faster clip because of the differences in our economies,” said Restrepo.
Northern Nevada’s more diversified economy still includes travel and tourism, but also tech and data centers, industrial parks catering to distribution, logistics and manufacturing. Furthermore, northern Nevada has Tesla and its support companies.
Northern Nevada is also more of a business suburb to the Bay Area and the Pacific Northwest than southern Nevada is to southern California, said Restrepo. Northern Nevada has higher quality jobs and a higher quality labor force, skilled in more than hospitality. Even so, those skills may need to change.
It’s expected some regions will lag behind the recovery. Southern Nevada has a different industry mix than the rest of the state. Its economy relies primarily on one industry – hospitality/tourism. Even when there’s an available vaccine it’s likely southern Nevada will lag into 2022 before full confidence in the hospitality industry returns.
That lag time means there’s a labor pool remaining unemployed, waiting for work in restaurants, retail, and hotels to return. “As far as those industries returning to preCOVID numbers, it’s going to be a while,” said Bonnenfant. “So, demand on that labor supply is not going to be as heavy as today’s industries that have exponential growth facing them right now. You’ve got a labor pool for a waning leisure hospitality industry, but we don’t have the labor for the growing industries.”
It will be logical, then, to upskill workers through workforce training programs already in place to meet the needs of new industries coming to the state, including advanced manufacturing, assembly line work and tech positions. It’s important to remember, however, Nevada workers have reskilled before for industries that came and went. It’s important to look at how transient the changes might be and if something can be done so retraining isn’t being done in another 10 years.
“We’ve got to look at the global economy and global activity with trade and what are called distant disruptions, which are happening more and more, and being compounded by climate change issues,” said Bonnenfant. Distant disruptions include things like supply chain interruptions experienced in the early days of the pandemic when suddenly goods coming from China couldn’t come from China. Distant disruptions exist because of the global economy and create a need for industries to insulate themselves from disruptions. For example, Bonnenfant said, Apple experienced enough disruptions getting chips made in China they’re moving that part of their business to Viet Nam. Supply chain interruptions in the early days of the pandemic has led to industries that were offshored coming back to U.S. shores, creating industries that will need newly upskilled workers.
Automation and robotics advanced during the pandemic, creating a skills training shift that has to be addressed. “We’re going to be getting into self-driving vehicles, more drones, quantum computers, blockchain technology. There’s a lot of technology that will be forced faster upon us from this pandemic,” said Bonnenfant.
Strong and Slow
Restrepo doesn’t expect an event that will catapult the economy back to where it was as quickly as it went down. He expects more of an organic return. Full recovery will require a return to growth rates in visitors, in population, in job growth, returning the state to where it was in March.
Some of that will require regional economies to reinvent themselves, more in the south than in the north. Some parts of the economy will return, although possibly different than they were. A number of national studies have stated that business travel will be, if not permanently, then for the long term, reduced by 50 percent. “That includes obviously business travel for conventions and conference and to see clients, but that’s going to be reduced pretty significantly. The convention business in southern Nevada and in Reno, to the extent Reno has convention business, [will be impacted]. That’s going to be the last to recover,” Restrepo said.
Even with the vaccine and the return of the last third of employees, it’s going to take time for the economy overall to return to normal, said Aguero. “I hope I’m wrong. I hope we have a slingshot effect or a Roaring Twenties effect.” The Roaring Twenties effect refers to the consumer exuberance that followed the end of the 1918 Spanish flu pandemic, when quarantines lifted, consumer confidence soared, and the economy prospered.
“I think some of that will occur, but we have to be mindful of the fact that the world’s economy is not going to come back online all at one time. The stress that has been put on our social safety net, on our businesses big and small and on our households is something that’s going to take some time to get past,” said Aguero.
Travel and Tourism
For Nevada’s travel and tourism industry, 2019 was a really good year; 2020 was a really challenging year, said Virginia Valentine, president and CEO, Nevada Resort Association. In March, the Governor’s orders shut down the industry for 78 days. Reopening was restricted to extremely limited numbers in limited venues. Direct job losses in hospitality totaled 282,000. Statewide 450,000 direct and indirect jobs were lost.
Heading into 2021, Valentine expects to see pent up demand for travel and entertainment combine with a successful rollout of the coronavirus vaccine. “The vaccine is going to be a game changer, though I don’t want to skip over everything we’ve done to create a safe environment,” said Valentine. “We’re going to work really hard to bring back the large events, meetings and trade show business. That business in particular is important for filling rooms midweek.”
Business travel is expected to remain indefinitely at about 50 percent of previous numbers as conferencing technology replaces some face-to-face meetings. But, Nevada offers such unique events, like Burning Man and the National Finals Rodeo, that the industry is expected to rebound as consumer confidence does.
In September and October, traffic on I-15 between California and Las Vegas was higher than in 2019. That’s a quick recovery, said Miller. “But we’ll have to see what happen[ed] in November and December given the resurgence of the coronavirus in California and Nevada.”
Construction and Real Estate
Nevada’s construction industry remained consistent through 2020, with tremendous demand for houses and low inventories in both northern and southern Nevada. Where the pandemic caused problems was with manufacturing and logistics delays, and median prices reaching record highs.
Market increases make people worry the industry’s headed for a crash, said Chris Bishop, president, Nevada Association of Realtors. But the 8 to 12 percent increase in value over the last six months of 2020 was in response to low inventory and high demand. Since most market corrections average 8 percent, a crash would simply reset the market to January.
Looking ahead, low inventory means Bishop expects to see 70 percent of product sell within 30 days of being on the market in 2021, though what’s driving demand has changed.
“Before COVID it was job creation [driving home sales]. We had a lot of businesses that were relocating into the state, coming out of California,” said Aaron West, CEO, Nevada Builders Alliance.
After COVID’s arrival, it’s more people than businesses moving in as newly remote workers realize they can live anywhere and afford more for their money in Nevada. Employers are embracing the remote-work trend, abandoning expensive office space, making commercial office space construction one of the hardest hit industry segments. The other is retail, where tenants are leaving and there’s no one to backfill space.
In 2021, buildings will change hands, creditors will step in, foreclosures will happen. Optimistic developers hope to buy distressed office buildings, gut them, and transform them into residential units.
The one segment of commercial building doing phenomenally well is big box industrial. Southern Nevada saw 20-millionsquare-feet of industrial built in the last two years. That growth is expected to continue.
Taxes
Pandemic-caused business closures and unemployment caused tax revenues nationwide to decline in 2020. When the Nevada Legislature convenes in February it will create a two-year budget based on the $8.5 billion in tax revenue the state will collect during fiscal years 2022-2023, said Cindy Creighton, president, Nevada Taxpayers Association.
“So far, the state has made cuts and tapped the rainy-day fund. We have received federal fiscal aid to our state and local governments and there has been federal assistance for workers and businesses,” said Creighton. But as the 2021 Legislative session approaches, questions remain: Will the federal government provide additional fiscal stimulus? Will there be more shutdowns?
The ability to meet the state’s revenue needs with a diminished tax base depends on vaccine rollout, consumer confidence, the pace of recovery and the availability of federal aid. So far, agencies have been asked to submit budget cuts of 12 percent.
Commercial property owners paying property taxes on empty buildings have already received 2020 property tax bills, but next cycle owners can appeal to have property taxes based on their income. Lower property tax rates will be advantageous to owners but produce less revenue for the state.
Consumer confidence will be critical in bringing Nevada’s economy back online, but another wave of federal stimulus or a relief package is critical. “As a nation but most certainly as a state right now we’re in the seventh inning of COVID-19 but the ninth inning of the stimulus, so here we are with these acute economic challenges and we’ve burned through the vast majority of the stimulus that was provided in that particular package,” said Aguero.
Federal relief and stimulus monies are needed for those people reaching the end of extended unemployment benefits, and for local governments providing essential services like police, fire, and education with reduced revenues.
“We’re going to need direct revenue as a state to get our economy going again,” said Aguero. “But as concerned as I am in terms of the level of stimulus that we put into the economy, I’m also mindful of what our economy would look like if we didn’t have it. I would argue that Nevada has benefitted as much, or more, than any state in the United States relative to the importance the stimulus has had in terms of stabilizing our economy.”
The majority of economists believe, without a rigorous next wave of stimulus or relief monies to states, both the recession and the recovery period will drag out. The next one or two waves of federal stimulus is critical to get Nevada’s economy back on track, said Restrepo.
The coronavirus vaccine is also critical for economic recovery, but unknowns surrounding participation, effectiveness and how long it will last leaves that part of the economic forecast a little shaky.
“There’s a lot of complexities here,” said Restrepo. “There’s no easy answers. There’s no magic bullets. We’ve never seen anything close to what we’re seeing in Nevada in terms of the impact on the economy, lockdowns and job losses. Never. This is a historical event.”
