Technically the U.S. – and Nevada – has been in a recession since December 2007. We’ve seen a tremendous blow to the financial markets during 2008 and falling consumer confidence throughout the first seven months of 2009. There’s been continuous job loss every quarter for the last four quarters.
Is there any good news? Yes. A consensus of economic panels states economic growth will turn positive in the third quarter of 2009, in part because some of the pre-conditions of recovery are being met, said Jeff Thredgold, economic consultant, Nevada State Bank. The precondition for any growth in the state’s economy is stabilization and for the bleeding to stop in the national and global economies.
“The current quarter is likely to be positive,” Thredgold said and the fourth quarter is expected to be positive as well. In addition, France and Germany are thought to have come out of their recessions in August and the U.S. economy is likely to move toward growth in the second half of 2009.
The Tsunami
The recession has been compared to a tidal wave. The water comes in and creates tremendous damage and destruction and when the storm is over, the water doesn’t all sweep back out to sea and leave everything shiny and upright. Instead, we’re left with standing water and broken trees and a lot of bare shelves where the goods for sale have been dragged off.
With a global recession, no one’s been immune. Maybe the official announcement of the recession in the fall wasn’t a surprise, but probably the scope and depth of the recession has thrown a few people for a loop. In Nevada we may not have considered ourselves completely immune, but we generally weather storms better than other states due to our drive-to destination, gaming and tourism and the diversification of the state’s economy.
“This is the first global recession since just after World War II, and that hurts Nevada the same as it hurts anyone else,” said Thredgold. “But it hurts Nevada in terms of gaming and people coming here and the selling of Nevada-made products and commodities. Nevada isn’t going to rebound until the national and global economies rebound and those two preconditions are taking place.”
“In the state, unemployment is at 12 percent, and in Clark County it’s at 12.3. Nationally it’s at 9.5 and that means Nevada is significantly above the national rate,” said R. Keith Schwer, director, The Center for Business and Economic Research, University of Las Vegas, Nevada. “What that means is we’ve laid off a lot of workers and I think the conditions in Reno and Las Vegas are always a little bit different. Nonetheless, both of those regions are in worse economic condition than the nation as a whole.”
Of the 50 states, 49 are in recession, according to Thredgold, and Nevada was hit hard, along with California, Arizona, Utah and Oregon. “Average unemployment across the west is above 10 percent and those states like Nevada, Arizona, California and Florida where it was very sexy to buy real estate between 2003 and 2006 whether you lived there or not were hit hard when prices came down to reasonable levels again.”
In addition, with the gaming industry in place Nevadans always expected that even with the ups and downs of the economy there would be tourism and dollars for the tourists to play with. In reality, that didn’t happen. “It was more than expected, a consequence of the longest, deepest and most painful and pervasive recession since the great depression,” said Thredgold.
“In Southern Nevada we’ve always made the statement we were somehow immune to recessions,” said Schwer. “I think that’s gone out the window. It’s very clear our economy is not well diversified and I think that’s true for both Reno and Las Vegas, we’ve got limited diversification in our economy and that shows up in the current economic downturn. “We’ll have to see whether or not the push toward renewable energy will help with that diversification.”
“We’re living in interesting times where we haven’t seen anything as long and hard as we’ve seen. But it is running its course,” said Thredgold.
Unemployment in the Silver State
In May of this year the U.S. unemployment rate was 9.4 percent. In Nevada, where just three years ago the unemployment rate was significantly under the national numbers and most other economic indicators were near the top of the charts, the stats were 11.1 percent in the Las Vegas metro area, 11.2 percent in Reno and 11.3 percent statewide (source: Economic Overview: May 2009, Department of Employment, Training and Rehabilitation.)
And it’s not just unemployment – it’s underemployment. “People are making 70 percent of what they were making and agreeing to pay cuts, so that figure is actually much higher,” said Bill Rosado president, ManagedPAY, a Nevada professional employers organization. “If you count underemployment we might be as high as 13 or 14 percent.”
What does 12 percent unemployment mean in real numbers? It means an estimated 169,800 people in the state are out of work and actively looking, according to the DETR report. It means that 15,600 people in Nevada became unemployed in the month of June alone, with 7,900 jobs lost since May, 5,900 in state or local government positions. In all, 83,700 jobs had been lost in Nevada in 2009 by July and when unemployment hit 12 percent in June, it was the highest rate ever recorded in Nevada. The only sector that doesn’t seem to have been hit in Nevada is mining, which according to Schwer has not been adversely impacted. “Prices are high for gold and other precious minerals and I suspect if you look at data there you’ll find no change.”
It’s a lousy time to be an employee and a lousier time to suddenly not be one anymore. And for businesses across the Silver State, it’s just plain a lousy time.
“It’s hard for employers,” said Rosado. “For 90 percent of all businesses, payroll is the biggest expense.” Which explains why so many businesses are letting high percentages of their employees go. But at the same time, “It’s the people who separate your business from the competition, the quality of services a business provides is based on the employees that do the work for that company and the last thing a business wants to do is hurt the employee.”
So businesses are trying different tactics for staying on track and keeping employees onboard if possible. “I’ve got several medical practices [as clients] who went to their employees and said they didn’t want to let anybody go but because of the bad economy, they needed to reduce wages across the board and wanted employees to accept and agree on an across-the-board reduction in salaries.”
Some businesses met with a favorable response, Rosado said, where employees were encouraged that they weren’t being let go and even that the employer was working to find solutions and keep them on. But not everyone felt that way – at one business employees revolted and refused to accept salaries decreases; instead, a handful of employees insisted the employer decide who to keep – and who to let go. “The situation became heated and contested and our HR department helped the client through,” said Rosado. “And the people who complained and wanted to stay were the ones who were let go, so it kind of worked, but in reverse.”
In other businesses, owners are stepping in and filling the void left by missing employees, taking on administrative tasks and some of the day-to-day management of the company. Others keep salaries and employees but cut back on 401(k) matches or cut benefits and health insurance programs.
“In another situation we had a client who had downsized tremendously and was operating with 50 percent staff and the owners taking on more responsibility for administration of the company. What we find is companies are getting rid of middle managers,” said Rosado.
Working with Unemployment in the Silver State
Changes in unemployment benefits have been put in place since the official start of the recession. According to Mae Worthey, public information officer, DETR, the current unemployment benefit extension allows Nevadans to qualify for up to 79 weeks of unemployment, which includes both the federal and state extensions of benefits. In addition, Nevada raised unemployment rates this year so that every claimant now receives an additional $25 per week.
But once the extensions run out, there aren’t any further programs unless the government votes them in. There are, however, job seeking programs, such as Nevada JobConnect, and federal stimulus monies launched a youth summer employment initiative through DETR.
Economic stimulus funds have also been used to launch a green initiative in Nevada, according to Worthey. Nevada Senate Bill 152 enacted the Green Jobs Initiative, which created a process to use federal stimulus funds to train unemployed or underemployed Nevadans to work in Nevada’s new and hopeful green energy economy. At least $34.7 million was allocated to the state energy program and the bill proposed DETR and the housing division of the Department of Business and Industry would contract with nonprofit entities to create training programs across the state. With 128,000 unemployed workers in Nevada in May, establishing a training program to make Nevada’s energy industry greener is much needed. Not only will such programs make energy greener, they’ll add some “green” to Nevada’s economy.
Looking to the Future
According to Thredgold, Nevada is seeing lesser levels of layoffs and some selective hiring, but rather than a speedy return to those pre-recession unemployment levels when it seemed that everyone who wanted a job had one, it’s more likely businesses are going to spend time building up their inventory and restocking the shelves first, while watching to make certain the apparent recovery is in fact real.
“What we expect in the current quarter is significant rebuilding of inventory, which is the stuff in the back room or on the shelves or cars on the lot,” said Thredgold. “There’s been an unprecedented reduction in inventories in the last year, this is seen with cars on the dealer’s lots and stuff on shelves. In the last quarter of the last year, and first quarter of this year, we saw the economy stabilize and pick up where companies have to rehire and replenish inventories that will contribute to positive growth over the year.”
In the Economic Overview: May 2009, DETR states that despite increasing unemployment across the state, there were some 1400 more jobs in May than April, the first month-over-month gain since September 2008, a positive indicator, and that May saw growth in the services sector though both construction and casino sectors failed to maintain employment levels.
“Officially we may be coming out of the recession, but people and businesses are not hiring up,” said Rosado. “People aren’t spending money, everybody is saving, and it’s going to take some time. Like when a tsunami hits an the water doesn’t recede for another month or so.”
Living in the Present
According Thredgold the recession is actually over – the effects just aren’t. While the indicators of recession are with us – the U.S. economy contracted again in the second quarter of 2009, consumer spending was weaker than expected, business equipment investment declined, and residential investment remained grim – all of these indicators were less bad than they’d been previously. In addition, government spending rose at a 5.6 percent annual rate, the strongest pace since 2003. And manufacturers actually increased production in some areas because business inventories declined at a $141 billion annual rate in the second quarter, worse than the $114 billion annual rate of decline during the first quarter, which means shelves were empty and car lots carless – and manufacturers needed to produce.
“We’re seeing better numbers,” said Thredgold. “Lesser job losses, more stories of manufacturing rehiring and more about GM and Chrysler to hire throughout the world. The Cash for Clunkers program is turning out to be somewhat successful and that shows up in auto workers having more work and that’s all positive for the economy. In that transition phase from economic decline of the last 20 months to a process of stabilization taking place right now and positive movement over the balance of the year.”
But even as the economy starts to turn around, unemployment continues. Nationwide and in Nevada, stats continue to be grim and probably will for some time.
“Unemployment is continuing to rise and I believe it will rise even after the economy begins to pick up because that’s the nature of the labor market,” said Schwer. “Before they hire people businesses will try to give more time to people they already have, overtime, and they will try to do other things before they go back and hire.”
And in some cases, we may never return to what we once considered normal. “If you look at construction activity, it’s going to be some time and in fact we may never go back to the level we had here, at least in Southern Nevada with the boom. On the other hand, I suspect with travel and tourism as visitors come back there will be a pick up in jobs,” said Schwer. “I think it will depend on the given industries what the prospects will be once the recession is over.”
