Las Vegas Sun

October 21, 2019

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Nevada suffers as rest of U.S. recovers

Report: State’s economy worse off than any other

Beyond the Sun

For so long Nevada was like the Globetrotters of the American economy — a fun, twirling circus act always winning the race in growth of employment, wages and property values.

But now we’re the Washington Generals — hapless, winless and sad.

And, that’s our indefinite future, according to a new report.

Moody’s Economy.com recently plotted the 50 states on where they are on the path to recovery: 11 are in actual recovery and 38 are seeing the recession moderate. The one state remaining: Nevada, still considered to be in significant economic contraction, with no clear end in sight.

At this economic inflection point in which the rest of the country appears to be entering recovery — however tepid and uncertain — Nevada still lags far behind.

No doubt the 13.9 percent of Las Vegas residents officially unemployed — and the unknown number out of work so long they’ve quit looking — want to know why recovery is happening in other states but remains a distant mirage here.

Economists and local analysts say the reasons aren’t very complicated.

“Our economic growth was, frankly, unsustainable,” says Elliott Parker, an economist at the University of Nevada, Reno.

Primarily, our economy was too focused on building stuff — stuff no one wants or needs now.

As Jeremy Aguero of the economic research firm Applied Analysis notes, 12.5 percent of our workforce is in construction (or was, anyway), more than double the national average of 5.5 percent.

That was great when people were moving here and needed houses, stores and casinos, and when tourists were clamoring for more hotel rooms. But that’s all finished.

Long road to recovery

Here’s a historical parallel: When there was a run on tulips in 17th-century Holland, too much of the Dutch population was employed raising and trading tulips. Once the tulip bubble burst, there were too many tulips and too many people who could grow tulips. And really, who needed all those tulips?

Our tulips are buildings of all kinds: We now have a 23 percent office vacancy rate. Companies have vacated 2.6 million square feet of warehouse space in the past year, leading to a 13.3 percent industrial vacancy rate. And although the housing inventory has declined due to brisk sales volume, prices won’t be rising any time soon because another fresh batch of foreclosures comes on the market every month; they are like freshly slaughtered hogs showing up at market, keeping the price of pork stable.

The rest of America doesn’t have this problem of so many extra buildings of all kinds, at least not to the extent we do. So while they begin to recover, we continue to suffer.

Construction wasn’t the only culprit, however. Americans during the middle Bush years went on a spending spree — often borrowing the money against their rising property values to do it — that greatly benefited Las Vegas.

“We were particularly dependent on that overconsumption,” Parker notes.

But suddenly the idea of a $3,000 weekend in Las Vegas seemed preposterous.

When Americans cut back, indulgent trips to Vegas were at the top of the list.

Thrift and prudence are now officially in, and Americans are still nervous, which means it will take some time for people to feel confident coming here and blowing cash on the casino floor or in the clubs.

Michael Helmar, Nevada analyst for Moody’s Economy.com, says American consumers will first buy things they need: Cars and household items, then attainable products such as electronics, and then, finally, they’ll take a vacation.

California is a particular problem for us. About one-third of weekend tourists are from Southern California, so until California recovers — and it’s got a ways to go — our recovery will be stunted, says UNLV economist Bill Robinson.

In the meantime we have too many hotel rooms, a situation that will be exacerbated, Aguero notes, with the opening of CityCenter, the Hard Rock expansion and the Cosmopolitan.

“Gaming overbuilt,” Robinson says. “And they went into too much debt. And they still need to clean up their mess.”

So there’s another reason we are late to the recovery party — Americans won’t be coming here in strong numbers for a while, and even once they return, we’ll have more than enough hotels, which will drive down the price of rooms.

Aguero says the key to Nevada’s future will be using our comparative advantage — our ability to bring huge groups of people to one place at one time — to fill those hotel rooms, convention centers and restaurants.

Behind the curve

There are some other, less significant reasons we aren’t recovering like the rest of the country.

Helmar adds that one of the few sectors that has been stable during the recession is health care. Health care makes up 15 percent of the workforce nationwide, but just 8 percent here — meaning we can’t take advantage of health care stability and growth like other communities, despite some gains in that area in recent years.

Then there’s the stimulus.

Helmar notes that manufacturing in the industrial Midwest has benefited from “cash for clunkers” as well as the shovel-ready bridge and road maintenance stimulus money. Nevada wasn’t well positioned to leverage these dollars.

Winning federal dollars is often predicated on matching dollar-for-dollar with state programs. But Nevada’s flinty government — we have one of the most restrictive Medicaid programs in the country, for instance — has made winning those dollars impossible.

Aguero mentions another problem that could be slowing recovery: Nevada has become stigmatized, for so long viewed as a surefire winner, now viewed as a place of foreclosures and joblessness. This may be preventing businesses and people from relocating to the state.

And although Aguero makes no such claim, could the stigma have an unknown effect on the psyche of potential tourists? Is Las Vegas a collective version of William H. Macy in “The Cooler,” who could ice a table with a mere touch of his thumb?

Despite the emerging stigma, Aguero says he’s not suggesting papering over our problems: “Hope is not a plan,” he says.

Parker makes the same point: “It is time for Nevada to do some serious thinking about what we do next.”

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