The Center for Business and Economic Research
University of Nevada, Las Vegas
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The Center for Business and Economic Research University of Nevada, Las Vegas
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The Center for Business and Economic Research released its Annual Economic Outlook at a conference on December 16, 2009. The following press was provided by Brian Wargo with the Las Vegas Sun and Hubble Smith with the Las Vegas Review-Journal. Copies of the complete Annual Economic Outlook: 2010 publication are available through the Center.
Southern Nevada's economy is submerged in the deepest recession the United States has seen since the Great Depression, and not even the most extravagant megaresort opening in the history of Las Vegas is going to pull it out, a UNLV economist said Wednesday.
"The party's over," said Mary Riddel, associate professor at the University of Nevada, Las Vegas and interim director of the Center for Business and Economic Research.
Virtually every sector of the local economy, particularly tourism and construction, shed jobs this year, pushing the unemployment rate to 13 percent. Home prices have yet to find their bottom and foreclosures continue to mount.
Visitor volume declined for the second straight year, and those who come here are gambling less and leaving sooner.
"Now, CityCenter is the wild card," Riddel said in reference to the $8.5 billion development by MGM Mirage, the largest privately funded project in U.S. history. "Some say it'll create a huge surge in demand. Others say CityCenter will create an economic debacle."
Riddel, taking over for the late Keith Schwer in presenting CBER's annual Economic Outlook, said the local economy is going to lag any national recovery.
The forecast calls for a 5.2 percent decline in employment for 2010, a 3.8 percent dip in gaming revenue and a 3.8 percent loss in personal income. Hotel room inventory and visitor volume are expected to increase 2.7 percent and 2.5 percent, respectively. Housing permits and population growth will remain relatively flat.
"There's nothing in the data that tells me this economy is going to make a turnaround," Riddel said. "We're going to see deep discounting in rooms. That attracts goldfish. They gamble less than whales."
Travel Web sites are advertising rooms in Las Vegas as low as $33. The top pick is a $79 room that includes a $50 dining credit and 25 percent off spa services.
CityCenter is reporting strong room bookings early on, probably at the expense of other hotel properties, Riddel said. The massive project may spur new demand, in which case the forecast is too pessimistic, she added.
"The U.S. economy will recover, but it's going to take a few months for us to catch up," the UNLV economics professor said. "The U.S. economy has not recovered enough for people to come here and spend big budgets on travel."
Risks to the forecast include a "double-dip" recession as the government's stimulus program wanes, bankruptcies in hotel and gaming companies, and inflation and energy price hikes, she said.
Constant Tra, associate director of UNLV's economic research center, estimated lost consumer spending of $893 million in 2008 and $920 million in 2009, a result of fewer mortgage equity withdrawals.
"People used the increase in home values as an ATM machine and that's not happening any more," he said.
Strip projects such as Echelon, Fontainebleau and St. Regis condo tower at Palazzo halted construction, costing the local economy $1.16 billion in lost construction in 2008 and nearly $2 billion this year, Tra calculated.
Also, 7,950 excess housing units built in 2008 displaced an estimated $614 million in residential construction and 5,500 excess units this year displaced another $424 million, based on average cost of $35 a square foot to build a new home.
One bright spot for Southern Nevada is the return of housing affordability, Riddel said. Median prices are well below the national average, which could stimulate some increase in population, particularly among retirees, she said.
Prices have fallen below the Case-Shiller Home Price Index trend line, but that doesn't mean they can't fall further, she said.
"I still think home prices will decline in Southern Nevada. I think there's still space to adjust," Riddel said.
James Smith, guest speaker at the economic outlook and chief economist for Parsec Financial Management in Asheville, N.C., said the global economy should improve in 2010 and 2011 and the strength of the recovery will be surprising.
"New investments in technology to stay globally competitive will be one of the main drivers of world economic growth over the next five years," he said. "So will investments to increase exports."
CityCenter won’t be a panacea for the Las Vegas economy, which will actually be in worse shape next year because of nearly 8,000 new hotel rooms and condominiums on the Strip, according to a report released today by researchers at UNLV.
The Center for Business and Economic Research in its Southern Nevada economic outlook for 2010 dismissed suggestions by other local analysts that CityCenter’s opening will boost the economy. That has been the history of resort openings, with the excitement and an increase in room demand, but that is no longer the case, the report said.
“The U.S. economy hasn’t recovered enough for people to come here and blow huge budgets on travel,” said Mary Riddel, a UNLV economist and the center's interim director. “Rather than CityCenter boosting the local economy … we think it will be at the expense of other properties. This is increased competition and when competition increases, you lower your prices.”
The old rules no longer apply in assessing the opening of CityCenter, said Riddel, who helped prepare a report unveiled at a conference at the M Resort.
The occupancy rate will be in the low 80s percentage-wise, about the same as 2009, Riddel said. An occupancy rate of 85 percent is considered break even, putting more stress on hotels, she said.
“Discretionary income has fallen all over the United States, and we are in a global recession,” Riddel said. “Even if they are visiting Las Vegas, many are constrained by not having enough money. We are not saying CityCenter itself won’t do well. It will do well, but it will come at the expense of other properties.”
Not everyone agrees.
Brian Gordon, a principal at the consulting firm Applied Analysis, said history has proved that opening resorts spurs demand. CityCenter’s $50 million advertising campaign should do that as well.
“CityCenter is a once-in-a-lifetime project,” Gordon said. “There is no other CityCenter on the Strip. It will drive the market forward and increase the overall exposure in the coming year. That exposure will pay dividends for Las Vegas in general.”
Riddel says Las Vegas’ economy will be hurt by airlines restricting the number of seats to the city and selling the remaining ones at higher prices. That will eat up the discretionary income that visitors have to spend, she said.
Despite CityCenter’s opening, the UNLV report predicts gaming revenue will decline 3.8 percent in 2010 before increasing 1.2 percent in 2011 when the region will start to see a modest economic recovery. That is when increases will occur in jobs, personal income, visitor volume, gaming revenue and home permits — all of which will fall short of 2008 levels, Riddel said.
Gaming revenue will decline despite an expected rise in visitor volume by 2.5 percent in 2010, Riddel said. The gaming revenue per person is at the low levels seen during the “family phase” of Las Vegas in the mid to late 1990s, the report said.
When the city adds 8,000 new hotel rooms and condominiums, that creates a more competitive environment, Riddel said. Deep discounts over the past year have lowered the quality visitors by attracting budget-minded travelers who will spend less on retail, gamble less and spend less time in Las Vegas.
"Last year we heard reports about people dragging up a cooler to their room at the Bellagio," Riddel said. “If this trend continues, we are attracting goldfish; not whales. These are not big spenders. … That doesn’t help us, especially in terms of our state gaming revenue and taxable sales.
Despite the spending of federal stimulus money in 2010 and improved conditions nationwide, Southern Nevada’s economy will lag the rest of the country and not start to recover until the end of 2010, Riddel said.
The recovery, however, doesn’t mean a return of earlier times, Riddel said. Job losses and declines in personal income will continue into 2010 before modest increases occur by the end of the year. Permits for new homes will remain weak, she said.
“So far, a lot of our job losses have been in hospitality, hotel and leisure and construction,” Riddel said. “In the last couple of months, we have seen job losses spread to other industries in particular the retail and wholesale trade, and we expect that to continue … We are going to start adding a few jobs (by the end of 2010), but it is not going to be a surge.”
The jobless rate has had an effect on Las Vegas’ population, which fell by about 15,000 in 2009 and will increase by about 7,000 in 2010, according to the center’s estimates. That is below the natural rate of population growth when factoring in births.
“This is something new for Las Vegas,” Riddel said. “The reason is we continue to shed jobs and at the same time people are likely to leave an area to seek work in a city with a lower unemployment rate.”
The report by the Center for Business and Economic Research mirrors an economic analysis released this week by the Brookings Mountain West initiative, a partnership between the Brookings Institution and UNLV.
That report singled out Las Vegas, Phoenix and Boise as the most troubled metropolitan areas for the Intermountain West.
The report looks at such factors as unemployment, home prices, and foreclosure rates.
“These ... large metros in the region remain three of the most severely distressed metros in the nation, and they inordinately define the region’s recession landscape,” the report said. “Each of these metros has been devastated by the bursting of the housing bubble inflated by years of easy credit and proliferation of exotic and unusually subprime mortgages.”
The report predicts the number of Clark County jobs will drop 5.2 percent in 2010 before increasing 0.5 percent in 2011.
Established in the mid-1970s, the Center for Business and Economic Research at UNLV is a leading source of economic and demographic data, analysis, and forecasting for southern Nevada. In addition to its annual Economic Outlook reports, CBER regularly publishes reports on the state of the local economy, with particular attention to housing and migration patterns. The Center also performs survey research and analysis for the publications of its public, private, and non-profit clients. These include the annual Las Vegas Perspective and Nevada Kids Count, and topical projects such as Projection 2003: A Report on the Future of the Southern Nevada Commercial Real Estate Industry and Health Insurance Coverage of Nevadans.
The complete Economic Outlook may be purchased for $40 (+ $3 for shipping) online through the CBER website, by email, and by fax or telephone from
For further information about the data and methods used in creating these forecasts, contact Drs. Keith Schwer at the Center.
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