Once again, we find ourselves at the end of the year in the position of reviewing what happened over the last 12 months in an effort to forecast what might lie ahead for 2003. Since Nevada can solidly claim its place as the fastest-growing state in the country, it would seem that predictions for 2003 would reflect plenty of prosperity with more to come, leaving Nevadans with the job of simply putting our collective noses to the grindstone to make it happen.
The fact is that 2002 was a year that required Nevada and the rest of the country to regroup and pull themselves through an unprecedented period. There existed no past game plan to follow for recovery after the events of Sept. 11, 2001. However, in true American style, we dug in our heels and insisted that prosperity would not leave Nevada. Although growth may not have been at the booming levels we have experienced in the past, most industries could claim continuity in maintaining current levels, or even achieving modest growth. Now that the first year since the terror attacks is behind us, the outlook is hopeful, but as several industry leaders report, “cautiously optimistic” is the motto of the day.
Although Nevada hasn’t recently enjoyed growth near the levels it experienced just two years ago, many industry leaders agree it is still one of the best states, if not the best state, to be in when it comes to potential growth and opportunity. However, no industry is an island unto itself. Problems in one sector of the economy can quickly transfer into other industries and become problems for them as well. Many industries are also keeping in mind a possible war with Iraq when factoring in potential hurdles for 2003.
Tourism
One of the industries to immediately suffer from the terror attacks was tourism. With a year of recovery under its belt, tourism still has to deal with rebuilding confidence, not only among regular travelers within the United States, but also among its international partners, such as Japan and China. However, Bruce Bommarito, executive director of the Nevada Commission on Tourism (NCOT), remains “very optimistic.” Rebounding from the attacks has been an ongoing effort, but Nevada seems to be recovering more quickly than the rest of the nation. In addition, tourism marketing efforts are way up, and strategically developed to provide a high return on investment. “When we spend a dollar on marketing we expect to make $120 back, and that’s without multipliers,” said the NCOT head. Bommarito’s goal is to continually increase that return to reach $150.
Economic Development
Lt. Gov. Lorraine Hunt also remains positive about Nevada’s ability to rebound. In fact, she cites comparisons of Nevada’s budget cuts to those required by other states as proof that we are recovering more strongly than the rest of the nation. Although the economic downturn led Gov. Guinn to declare a three percent cut across the board in the state’s budget, the average cut around the country was 17 percent. In addition, Hunt believes Nevada’s entertainment venues provided a much-needed break for Americans over the past year. “Nevada is the USO of the nation,” she said.
Without a war, Hunt sees much potential for prosperity in the state. Drive-in visitor counts have increased and are continuing to increase. Occupancy rates are high, not only for the state, but in comparison with averages around the country. As she puts it, “Our occupancy rates are between 80 and 90 percent. Nationwide, occupancy rates are around 69 percent, and that number is considered good.” In addition, she feels the real estate boom in Nevada is a major contributor to future success, along with potential relationships with China. Now that China is a member of the World Trade Organization, she is finding the Chinese very interested in coming to Las Vegas. At first, she says, they want to come to play. However, once they get here they understand how the successful business climate works, and it becomes that much more appealing. They are also, “hungry for the American country and the culture.” She believes entertainment may also be one of the state’s major exports in the future. “Nobody in the world has the infrastructure for entertainment and conventions like we do in Las Vegas.”
In the event that the United States does find itself in a war, Hunt still remains positive, but realistic. “If we have a war, it will be a world-wide war. Are we in a better place? Yes. Will it be easy? No.”
Banking
Tom Mangione, president and COO of Nevada Community Bancorp and president of the Nevada Bankers Association said 2002 was a trying year for his industry as it attempted to recover from the events of Sept. 11. However, banking didn’t experience the direct affects of the terrorist attacks until about six months later, so its cycle of recovery started a little later than the rest of the country. “We experienced a small amount of growth and will end the year at nine percent to 10 percent growth,” said Mangione – not stellar, considering that more than 20 percent growth was projected.
Mangione said the banking industry is starting to see some nice activity, however, which started picking up around the end of the summer. Though things have been looking up, he said he isn’t predicting 20 percent growth again for 2003, and would be happy with nine percent to 10 percent growth overall for the year. On the plus side, Mangione lists loan requests as solid, along with some steady deposit growth. However, he believes that deposit growth is a direct result of current disappointing stock market activities, and expects those may decrease if customers feel confident about investing in the market again in 2003. He predicts the positives for 2003 to include low interest rates, strong core business in the state of Nevada and current occupancy rates remaining at decent levels.
Healthcare
The healthcare industry has its own unique issues that massive growth throughout the state cannot cure. While most industries would feel the impact of growth and increased population numbers in a positive way, healthcare has the potential of buckling under the load, according to Bill Welch, president of the Nevada Hospital Association.
“If we continue in the trend we’re currently on and nothing changes, it’s pretty bleak,” he said. The trend to which he is referring combines several things. First is the state’s use of this year’s budget to cover last year’s Medicaid shortfall. In addition, the state is anticipating an additional $10 million budget shortfall for this year. Welch explains that basic economics shows the proposed budget increase of 4.9 percent is not going to keep up with the growth increases, which are almost four times that amount, at 20.1 percent. Malpractice insurance issues, coupled with fewer doctors accepting Medicaid, means increasingly limited options for residents in Nevada, particularly in the southern portion of the state. When we top that off with the worst nursing shortage in the nation, Welch maintains that, without intervention from the Legislature, he can only provide a 2003 forecast that’s “pretty doggone bleak.”
Manufacturing
Ray Bacon, head of the Nevada Manufacturers Association, said 2003 is going to be interesting simply because there are so many unknowns facing his industry. While manufacturing growth on the national level has been flat, Nevada has the potential of benefiting from California’s misfortunes. These misfortunes include huge cost increases for California manufacturers, which have contributed to an increased number of workers and businesses coming to Nevada. However, Bacon maintains that the proposed gross receipts tax for Nevada businesses has the potential of scaring people away. He sees Nevada as becoming a more serious option for businesses looking to expand or relocate, but the gross receipts tax could have a very negative impact on that potential for the state. The Nevada Manufacturers Association helped successfully fight against the teacher’s union during the last legislative session, said Bacon, and when it comes to the next session, “We have big plans, but it’s going to get ugly.”
Mining
It’s no secret that Nevada’s mining industry has taken quite a hit over the last couple of years. Considering that precious metals exist in a world market, states have little if any control over the market’s fluctuation. This leaves the mining industry in the position of having to be fairly creative in finding alternative ways of making budgets tighter and processes more efficient. Because of the drop in the price of gold, Russ Fields, president of the Nevada Mining Association, said the mining industry “has done a good job in creating greater efficiencies.” Fields said the price of gold is also getting better, considering that the average price in 2001 was $272 an ounce compared to today, with the price around $315 an ounce.
In addition to creating efficiencies within day-to-day mining activities, “Many companies are starting to look at how they can keep their operations steadily functioning by anticipating the ups and downs. Most of the larger mines also participate in their communities and other economic activities in an effort to diversify the economies they are a part of,” said Fields.
Looking forward, Fields expects that gold will stay above $300 an ounce and may even get as high as $350. He is upbeat about the industry’s investment in increased efficiencies, coupled with the expectation of higher prices for future prosperity, but still maintains a conservative outlook. “We’re not doing cartwheels in the streets by any means, but it’s better than it’s been.”
Real estate and Construction
Residential construction in Southern Nevada is still moving strong, and is expected to stay strong throughout 2003, according to Dennis Smith, president of Home Builders Research, Inc. “The demand is still very, very good and interest rates are going to stay low,” said Smith. In addition, Smith expects new home sales to reach approximately 22,500 for 2003, which is comparable to the numbers for 2002. He even reports that sales per subdivision have been greater than sales prior to Sept. 11. “2003 is going to be very similar to 2002 if we don’t have any major international events,” said Smith.
In industrial real estate, Rod Martin, vice president of Majestic Realty, said he expects 2003 to be like “more of 2002, which is probably a little negative, since 2002 was off from prior years. That’s not to say that things are bad, because we’re holding up better than the rest of the country.” Martin also maintains that as long as people keep moving here – and they are still steadily doing just that – he expects positive things for the industrial real estate market.
The commercial real estate market in Northern Nevada is also operating under an optimistic attitude. John Pinjuv, president of Grubb & Ellis, said he saw some industrial and retail vacancies increase, but not anything that would be considered dramatic. Because the whole state is still growing steadily, the growth is able to offset some of these vacancies. In addition, he explained that Northern Nevada is considered a secondary market, and that we don’t suffer the same hits a larger market would. In fact, he said, “A lot of businesses in California are tired of spikes and drops, and that’s why they come here.” He added that he’s “very, very optimistic. I think it’s a great state. I have no doubts that Northern Nevada will weather this recession and come out even stronger.”
Going Forward
When discussing a forecast for 2003, Dr. Keith Schwer, director of the Center for Business and Economic Research at UNLV, reiterates the importance of paying equally close attention to the positive and negative potential for the future of most industries. “The outlook is mixed, and not as bright as it has been in the past,” Schwer said. He maintains that, on the one hand, predictions for the national economy aren’t optimistic, because investments are not very strong, especially in the high-tech area. In addition, consumer confidence is down and the stock market has been giving a dismal performance. War may be on the horizon, and there is general uncertainty in the political climate. Combined with the negative impacts of medical malpractice, construction defect lawsuits and the state’s fiscal difficulties, the picture does appear to be quite bleak.
However, Schwer cites tourism as “holding its own” and counts it as a strong factor on the plus side, especially for Nevada. In addition, he maintains that Nevada is “attractive for living and job growth. Even in the face of recession, it continues to grow. Retirees continue to come here, and the economic incentive to sell homes in higher-priced housing markets such as San Francisco is high.” Schwer also reminds us that what’s considered modest growth in Nevada could be considered robust in other states. Overall, Schwer expects “modest expansion with lots of unknowns.” His advice: take a cautious approach to 2003.
Jeremy Aguero, principal analyst for Applied Research, also expects slow growth for 2003, but keeps a positive outlook by citing several examples indicative of a rebound, such as employment growth rates expected to reach 1.4 percent to 1.5 percent, or possibly as high as 3 percent. In addition, gasoline prices, which normally increase when the economy becomes sluggish, continue to remain steady.
Aguero agrees that tourism is not officially back, but warns against pundits who take too negative a position against this industry. He feels it’s important not to underestimate the inventiveness of the gaming industry, which has survived tougher times than these. He also touts Nevada leadership as a strength that puts our state in a positive light going forward. Augero applauds the efforts of the Nevada Commission on Economic Development and its partner agencies and said the group has done “a hell of a lot with a hell of a little.”
In short, Aguero is confident that Nevadans can be hopeful about the future. Considering the combination of business expansion, continued construction plans statewide, low oil prices and a determined effort by political leaders to seek a more balanced way for the state to solve its fiscal problems, he feels we’re still standing strong. As he put it, “I can’t tell you how fast it will be, but I can tell you – Nevada will be back.”
