Nevada’s economy is arguably at its weakest point in the past 20 years.
The state’s unemployment rate currently stands at 7.1 percent, a full point
higher than the national average; net employment is down 8,500 jobs during the
past 12 months; foreclosure activity continues to lead the nation; and
residential permitting has dropped to 10-year lows as population in-migration
has slowed to levels not seen since the early 1980s. Nevada is not immune to the
nation’s financial or confidence crises, particularly weak consumer confidence
levels and low intent to travel readings that point to a continued deterioration
of the region’s disposable income-dependent economy.
All this being said, largely absent from the discussion is any measure of
balance. Much has been written about the 12,600 residential homes owned by banks
today, while little has been written about the more than 500,000 homeowners that
remain current on their outstanding obligations. Much has been written about the
failures of Silver State Bank and First National Bank of Nevada, with relatively
little commentary given to the reality that the vast majority of Nevada’s 42
charted financial institutions continue to lend money to home and car buyers as
well as businesses. Much has been written about recent double-digit drops in
gross gaming revenues, without any discussion of the double-digit gains recorded
during most of the past five years or the reality that Las Vegas occupancy rates
averaged 89 percent through the first seven months of 2008.
Noting these statistics should be viewed as a matter of perspective and not a
lack of concern regarding the state’s current economic situation. A review of
leading indicators suggests the condition is tenuous and will likely worsen
during the next two quarters. Offsetting the positive recent contributions of
Congress and the Federal Reserve Bank will likely be increased instability in
Nevada’s commercial markets and the potential for land price volatility. Office
inventories continue to expand even while reporting 17-percent vacancy rates in
southern Nevada and 19-percent vacancy rates in northern Nevada. Major anchor
retailers are closing underperforming stores, leading to rising vacancies in
neighborhood centers and community centers throughout the state. Slower rates of
population and employment growth will inevitably translate into softer demand
for residential units and commercial space, keeping the rate of economic
expansion modest through 2008 and most, if not all, of 2009.
The coming year (2009), however, is not devoid of promise or possibility. The
year will begin with the introduction of Wynn’s Encore (scheduled to open by New
Year’s Eve) and will end with the opening of MGM MIRAGE's $9.2-billion
CityCenter project. These two developments alone will require more than 20,000
full-time workers. The residential market is also showing preliminary signs of
approaching its bottom. Existing home sales have crept up in recent months and
existing home prices are falling at a slower pace. After declining for 22
consecutive months, statewide permitting activity increased slightly for the 12
months ending July and August. Current price points remain a formidable barrier
for most residential development; however, apartments continue to report
occupancy rates of 93.7 percent in the Las Vegas metropolitan area. Lower land
prices also bode well for industrial developers, which have reported a dearth of
developable property relative to demand, particularly in southern Nevada.
While it has become somewhat of a faux pas to focus on the fundamentals when the
nation’s economy is reporting such profound weakness, there is a reason why
Nevada has led the nation in population, employment and income growth during the
past 20 years. The state’s pro-business tax structure, proximity to major
Western markets, steady stream of new employees and 53.4 million annual visitors
provide fertile soil for business growth. Nevada's position as a low-cost haven
for working families and retirees was strained with housing prices doubling
during the past several years, but today median home prices are rapidly
approaching 2003 levels even as per-capita incomes remain higher-than-average.
Although no one can say with certainty how long the current economic downturn
will persist, it will end eventually. And, when it does, Nevada's relative
positioning is likely to resemble more of the past 18 years than the past 18
months. |
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CURRENT QUARTER
INDICATOR BRIEF: |
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ECONOMIC
HIGHLIGHTS: |
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1. |
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Unemployment rate rose to 7.1 percent during
the quarter |
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2. |
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Employment experienced a decline of 6,400
jobs |
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3. |
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Apartment occupancy rates increased 0.2
percentage points to 93.7 percent between
the third quarter of 2007 and the third
quarter of 2008 |
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4. |
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Approximately 12,600 homes in the Las Vegas
valley are owned by banks |
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