Las Vegas economy in free fall

By Buck Wargo

Friday, March 13, 2009 | 2 a.m.

The Las Vegas economy’s tailspin isn’t stopping.

It doesn’t sound good when there is an analogy between the Las Vegas economy and cliff diving, but that’s how UNLV economist Keith Schwer described the latest numbers released March 10 by the Center for Business and Economic Research.

All 10 categories of the Southern Nevada Index of Leading Economic Indicators declined in February, eight by double digits from last year’s levels. The components of the index have even fallen below their counterparts in the national index, he said.

“It is dropping precipitously,” Schwer said. “It’s what we refer to as a cliff-diving chart.”

What that means is that the economy shows no sign of recovery anytime soon, Schwer said. The index is a forecast of Las Vegas’ economy through June 1. At best, the valley can hope for some recovery in the fall, but Schwer said it’s difficult to predict because of the housing market, credit market and jobless rate.

The Index of Clark County Business Activity continued to slide with an 8.1 percent drop — the largest ever recorded, Schwer said. Over the past year, that index has declined every month, he added.

Schwer said with companies laying off workers, the recession is starting to look as bad as the one in the early 1980s.

“The recession that started in October 2007 shows no signs of letting up,” Schwer said. “Job losses continue to mount, and Southern Nevada’s jobless rate is well above the national rate. Further deterioration is anticipated.”

There are no signs of improvement in consumer spending, job growth and investment, said Jeremy Aguero, an economist and principal with Applied Analysis. Where there is investment, it is people looking to buy foreclosures or other opportunities where there are losses, he said.

“There are precious few indicators that the market is finding its bottom,” Aguero said. “The question over the next six or eight months is whether the federal action will have some signs of relief on the U.S. economy. That is questionable right now.”

The main index fell 4.68 percent in February compared with February 2008. One of the biggest reasons for the decline was a 16.7 percent drop in taxable sales in December, the latest monthly data available, Schwer said.

The second biggest drag on the index was a 75 percent decline in the value of housing permits issued in December. There were only 148 home permits issued in December — a 25-year low.

Other categories that recorded declines in February:

• Commercial building permits — down 57 percent.

• Commercial building permit values — down 72 percent.

• Passengers at McCarran International Airport — down 14 percent.

• Gross gaming revenue — down 18 percent.

• Visitor volume — down 10.9 percent.

• Convention attendance — down 4.9 percent.

• Gallons of gasoline used — down 5.3 percent. That is an indicator of out-of-state visitors and transportation of goods.

The Clark County Tourism Index fell 15.8 percent, which is a reflection of falling occupancy rates, Schwer said. Even though there are often smaller crowds in November and December, occupancy rates in the 70 percent range hurt the gaming industry’s profitability, he said.

The good news is that value of trips to Las Vegas is increasing with dropping room rates and that should help some overcome the recession, he said.

Construction had a horrific month with the Clark County Construction Index down 36 percent, Schwer said. Since September, the index has fallen more than 30 percent when compared with the previous year. Commercial construction is headed down the same road as residential activity, Aguero said.

Construction jobs are down more than 11,000 and those losses have created job losses elsewhere, Schwer said. The Las Vegas jobless rate reached 10 percent in January.

“The rise in unemployment does not bode well for the housing market,” Schwer said. “It puts further pressure on foreclosures.”

The one sign of hope is that the housing market may have overcorrected with its falling prices, Aguero said. That has helped boost home sales and since housing created the economic downturn, sales increases should help with its recovery, he said.