Wells Fargo economist sees Vegas growth moderating

Phil Levine

Wednesday, May 10, 2000 | 10:11 a.m.

Southern Nevada's economy will continue to flourish this year, despite a growing shortage of workers and slower growth in the number of tourists and residents.

Wells Fargo & Co. chief economist Sung Won Sohn delivered that message at his annual economic update Tuesday at the Bellagio hotel-casino.

"The two basic economic engines driving the state's growth are the gaming sector and continued population growth," said Sohn.

"But the number of tourists and new residents will grow slower this year. In the gaming sector, we saw four mega-resorts open last year, while this year only the Aladdin is forthcoming. It's unclear what affect that may have on the number of visitors."

Sohn expects the number of Nevada vistors to rise by about 4 to 5 percent this year, down from a 10 percent increase in 1999.

Also contributing to a moderation in the growth of tourist numbers will be a cooling of the national economy.

"The U.S. economy may slow down this year, and that will be complemented by more aggressive moves by the Federal Reserve to raise interest rates," he said.

Sohn believes the May 16 Federal Reserve meeting should provide "some surprises" to the financial market.

"The market has been immunized to a slow-motion monetary policy," he said.

Instead of a "predictable quarter point hike," Sohn said the Fed should raise rates by a half or three-quarters of a point.

Although the the move would "damage market sentiment" and consumer confidence, the eventual level of interest rates would be lower than it would be under the gradual approach, he said.

"It's a delicate balancing act for (Fed) Chairman (Alan) Greenspan," he said. "But so far the economy appears to have Teflon coating that can't be penetrated by bad news."

Despite recent turbulence, Sohn said the stock market remains healthy. Some 75 percent of first quarter earnings announcements were above expectations, he said.

Further proof of the market's resilience: since Oct. 1, 1999, Nasdaq is up about 33 percent, the Standard & Poors 500 is up 10 percent and the Dow Jones Industrial Average has risen 2.5 percent.

Locally, Sohn expects about 48,000 people to move to Las Vegas this year, down modestly from last year's level of 50,000 newcomers.

"That is an important economic driver, especially given the severe labor shortage," he said.

"The question that arises is -- without several new mega-resorts -- how do you attract more and more people when there are jobs virtually everywhere in the country?"

In Nevada, the sectors most affected by the lack of available labor will likely be the construction and service industries, he said.

As Nevada's economy gradually diversifies, nongaming companies will have a growing impact on economic health.

"Las Vegas will likely continue to be the fastest growing job market in the country this year," he said.

As the number of job opportunities grow, so too will the diversity of those positions.

"We're seeing a growing number of high-tech companies looking to move here from Silicon Valley. Certainly the prime attractions (to Nevada) include its proximity to California and the fact that there's no state income tax."

Another California-based industry eyeing Nevada is the motion picture business.

"The people involved in the film industry are under increasing pressure to cut costs," he said.

Reflecting on his own industry, Sohn said he expects the trend toward mergers and consolidations in the banking sector to continue.

"There are still too many banks in this country," he said. "I expect you will see the big ones get bigger as more new, smaller ones emerge."

Phil Levine is a business writer for the Sun. He can be reached at (702) 258-4068 or phil@lasvegassun.com