Las Vegas primed for economic recovery

By Buck Wargo

Friday, Oct. 29, 2010 | 3 a.m.

Although Las Vegas is mired in a deeper recession than the rest of the country, a Boston-based economist said Southern Nevada’s economy is primed for a recovery because it’s attractive to businesses and retirees.

Jim Costello also pointed out that consumers are starting to spend again even though it’s more modest than in the past.

Costello, director of investment strategy services for the brokerage firm CB Richard Ellis, told clients and staff that a lot of negativity exists in Las Vegas and across the country that makes people afraid to see positive signs of a recovery.

People slowed their spending because their wealth dropped with a decline in the housing market and stock market. Although consumers will save more in the future, as they feel wealthier they will spend more, Costello said. Discretionary spending fell more than 5 percent in 2009, but has risen by 5 percent this year, he said.

“We’re not going to get back to the Paris Hilton economy where people are spending money like there’s no tomorrow, but consumption is up 5.7 percent over a year ago and consumers have more wherewithal to spend money. They’ll come back for a vacation. It will be more modest than in the past, but the trend will be right.”

Although consumers won’t be spending as they did in the past, the bigger gain should be from business visitors, Costello said. Businesses are trying to do more video conferences and travel less, but when they do travel they are going to come to events in Las Vegas where they can meet their clients.

The stigma of holding conferences in Las Vegas has lessened since President Barack Obama raised the issue, Costello said.

The American economy is resilient and doing better than a year ago, said Costello, who told his audience to trust there is a recovery and any slowdown shouldn’t be viewed as a double-dip recession.

Costello, who spoke Oct. 19 at the CB Richard Ellis offices at the Hughes Center, said markets that had the biggest drop in sales and home prices such as Las Vegas are in a good position to rebound.

Las Vegas’ growth was fueled in part by retirees from the Midwest and Northeast moving to Southern Nevada because of inexpensive housing, Costello said. That stopped when home prices rose, but that scenario has returned with home prices falling 60 percent from their peak, he said.

“The ones that were hit the hardest during the downturn we think will come back most quickly, including Las Vegas,” Costello said. “This correction lays the foundation for new sources of growth.”

That means an increase in home construction, he said. The industry had been building 2 million homes a year even though only 1.2 million a year were needed. That had to lead to a price correction, added Costello, who admitted the extent of that decline and deep recession that resulted caught him by surprise.

The industry is building 500,000 homes a year today and that’s won’t be enough to keep up with the country’s demographic changes and need for more homes, Costello said.

The lower cost of housing is also attractive to businesses that want to move to Las Vegas and bring employees with them, Costello said. As the valley and Phoenix did in the 1990s, Las Vegas is ripe to pick off firms from California where companies are facing higher taxes to deal with that state’s budget woes.

The ultimate gauge of the economy, however, will be jobs, he said. The private sector has been adding 50,000 to 70,000 a month over the past three months, which is not the 150,000 to 200,000 a month needed to eat into unemployment, but that’s quite a change from the 250,000 a month decline in 2009.

The one concern is state and local governments started layoffs in September because of the budget problems they are facing, he said.

Companies are investing in software and equipment, and it’s only a matter of time before they start hiring again, he said. Corporate profits are up and productivity is starting to decline, and companies realize they need to hire more people to keep up their pace of sales.

The increase in temporary workers is a positive sign of what’s to come with hiring employees full time. The sector that will lead the way is business and professional services, he added.

He predicted that while the nation’s job growth is 2 percent a year for the next five years that Las Vegas will average 3 percent a year over the same period.

“Some of this will be back loaded as the economy gains ground nationally.”