Two sides of the economic coin

By Buck Wargo

Friday, April 10, 2009 | 2 a.m.

How is the Las Vegas economy doing and where is it heading?

Las Vegas economist Jeremy Aguero is playing devil’s advocate on the future.

The Las Vegas economy still has some rough patches ahead, but Aguero, a principal at Applied Analysis, says the region’s long-term prospects remain bright.

Everyone’s take on the economy depends on their perspective of whether they view what’s happening in Las Vegas through the prism of a glass that is half empty or half full, says Aguero, who spoke to more than 500 people during the annual Las Vegas Perspective research guide’s unveiling. His devil’s advocate take was sobering, but Aguero remains optimistic.

“You can take a look at it from a number of perspectives, but the good news is almost every analyst out there expects us to be in some type of recovery by the time we get to 2012,” Aguero said.

By historical standards, Las Vegas and the nation are more than halfway through the recession, and the region has overcome other downturns with a strong bounce back, he said.

“The economy has weathered storms before, and I certainly believe it will weather this one.”

But that doesn’t mean there aren’t concerns if the deep national recession continues. If that were the case, Las Vegas could lose tens of thousands of jobs and a quarter of a million people over the next five years, he says.

“That would be a difficult scenario for us to deal with,” Aguero says.

Las Vegas had 2.1 million fewer visitors last year and when the average person spends $715 per trip, that removes $1.5 billion from the economy. It shows Southern Nevada isn’t immune to economic cycles, he says.

“That is a lot of money to lose, not only for the core tourism industry, but the economy in general,” Aguero says. “That is significant ... The ability of that industry to buoy us the way it has in the past is going to be difficult.”

Despite the financial woes of gaming companies, it is a debt problem that can be overcome even if they file for bankruptcy because of their cash flows, he said. Still, the global financial crisis has created a chilling effect, he says.

“This is scary for a community like ours that has grown every year and that has seen continued prosperity from that kind of investment,” Aguero says.

Aguero is not predicting any meltdowns, but says Las Vegas has been hurt by the tourism downturn and job losses in the hospitality and construction industries. There are also concerns about the weakness in commercial real estate, he says.

Even if CityCenter construction is not halted, what happens to the workers when that project is complete? he says.

“There is no next job for many of these construction workers,” Aguero says. “For the first time in Southern Nevada history, there is no next job for them to go to.”

There are always concerns in a city where 39 percent of the workforce is in leisure and hospitality and in construction, Aguero says.

“If 39 percent of the workforce is hotel and casino and construction, and if construction is slowing significantly and the available capital is gone ... the decline continues to build upon itself,” Aguero says.

Las Vegas has lost more than 40,000 jobs in the past year, and only a few sectors such as education, health and government are growing.

“Those who want to view the glass as half empty and how we have the highest unemployment rate since early 1980s, they are going to say that one-third of the people migrated to Southern Nevada and how they came for economic motivation. They are going to mention when that opportunity is gone, so are (those people who moved here).”

Las Vegas is not without its problems with 16,500 homes owned by banks and seven of every 100 homes are sitting vacant, Aguero says. And the declining real estate values are hurting local governments, he says.

There is a fear that with 58 percent of homeowners underwater — owing more on their mortgage than their homes are worth — they are going to walk away from their homes, he says.

“That may be the only option for a number of homeowners,” Aguero says. “That’s a frightening proposition not only for lenders and homeowners, but for a community.”

Nevada has lost more than $50 billion in wealth on homes or $23,500 per person, he says. Home appreciation fueled consumer expenditures and growth in the economy, and it’s not surprising taxable sales fell 17 percent in the past year, he says.

But Aguero warns that although the residential market has had a devastating effect on the Las Vegas economy, the region has yet to see the impact from commercial. The vacancy rate for office buildings that opened in 2008 is 65 percent and those without the cash flow will have a difficult time repaying loans. The values will continue to fall as properties are sold by lenders, he says.

“We have seen it occur in the residential market, but we have yet to fully face it in the commercial market,” Aguero says.

Brian Wargo covers real estate and development at In Business Las Vegas and its sister publication, the Las Vegas Sun. He can be reached at 250-4011 or at [email protected].