Las Vegas Sun

March 28, 2024

Rising gas prices add insult to economic uncertainty

Nevadans hear of recovery, don’t see much

KSNV: Gas prices

KSNV coverage of rising gasoline prices, March 4, 2011.

Jeremy Aguero

Jeremy Aguero

Enough already. Record unemployment. Widespread foreclosures. Rising food and clothing costs. Round-the-clock anxiety images of the multiple disasters in Japan. And suddenly gas prices are spiking.

That adds just one more layer to the anger, frustration and confusion that so many of us are experiencing daily. Whether you have a full-time job or are among the tens of thousands of Nevadans who have been out of work for two years, you can’t help but feel it.

“It’s not apathy, but some people have given up and many more simply have a sense of resignation,” said UNLV economics professor Nasser Daneshvary. “You see it in their body language. They don’t have much to say. The way I describe it is they are subdued. There’s a sense that ‘I’m simply trying to survive.’ Rising gas prices are just adding to the mood.”

Southern Nevada drivers purchase 700 million gallons of gasoline annually. So as we flirt with $4-a-gallon gas prices sparked by the political turmoil in the Middle East and North Africa, the math is clear: a $1-a-gallon jump at the pump for a year equates to $700 million.

Just a small percentage of that money remains in the hands of local retailers. Most of the dollars disappear from Nevada’s economy — a third of it staying within U.S. borders, the rest headed to foreign oil distributors, traders, refiners and drillers.

Las Vegas Valley gasoline retailers earn just pennies per gallon from the typical sale but generate as much as two-thirds of their profits from the video poker machines in their stores.

The bottom line finds a cash drain from the state’s $120 billion annual economy, money that might have gone to create work for some of the 24 percent of the state’s workforce that remains unemployed, underemployed or has quit looking for jobs, according to the U.S. Bureau of Labor Statistics. That same dynamic plays out nationally, with U.S. drivers consuming 140 billion gallons of gasoline annually.

Ironically, illegal sports bettors wager $140 billion a year worldwide, according to a recent study by the International Olympic Committee, a strange equivalency that should resonate with any community that depends on the ties between consumer behavior and the fortunes of the oddsmaker.

“Rising gas prices are a setback but not a death blow,” said economic analyst Jeremy Aguero, principal analyst at the Las Vegas firm Applied Analysis. “Every community has things that happen, but we go on. If gas prices go to $5, we will innovate ... with wind, solar and geothermal power.”

It’s a matter of faith that our recovery is linked to consumer confidence, but that attitude has taken a beating for nearly three years, particularly in this region, as the wealth effect of the early 2000s has been replaced for many with the uncertainty that comes from tens of thousands of empty homes, closed retail stores, vacant office parks and suspended retail projects.

You hear it from business operators who cheer for profits that are flat rather than down. It is reflected on grocery store aisles, where friends tell one another that they are just happy to be working, even if they have a miserable boss or a reduced work schedule.

The U.S. unemployment rate unexpectedly fell to 9 percent in January, its lowest level in 21 months. The January unemployment rate in Nevada dropped to 14.2 percent after nine consecutive months at 14.9 percent, according to the Bureau of Labor Statistics. The Dow Jones industrial average has hovered around 12,000, good news for the 30 blue-chip companies on the list as well as the individuals, and private and public investment funds that have strong positions in those stocks.

But rising food, milk and clothing prices are hitting many consumers hard in this country and overseas, and that has shaken consumer confidence. So too have the devastating images from Japan, where the earthquake, tsunami and nuclear disaster are generating constant images of fear and uncertainty, while raising questions about Japan’s ability to produce cars, computers and high-tech components for businesses and consumers in this country.

The University of Michigan Consumer Sentiment Index found that consumer confidence fell to 58.3 this month, which was down from 71.6, its lowest level in two years. Price inflation and rising gas prices were two of the drivers.

Even millionaires are feeling the malaise. The research firm Spectrem Group noted last week that the number of U.S. households worth at least $1 million rose to 8.4 million last year, up from 7.8 million in 2009, the beneficiaries of the stock market surge. But even the wealthy have doubts.

“While investors are feeling positive about their own portfolios, they are not convinced that the economy has recovered,” Spectrem President George Walper told CNNMoney. “Our ongoing polling and research indicates that investors remain unconvinced that we are back on solid ground.”

To be certain, Southern Nevada’s yearly travel comparisons have been up the past year, with more visitors driving and flying to the region than a year ago. But the yardstick isn’t that tough to beat when you consider the depths of the 2008-09 collapse.

Look more deeply at the economic trends and you see that the home foreclosure crisis continues throughout the Sun Belt, with Nevada leading the way nationally for 50 months. Americans remain highly leveraged despite the decline in credit card debt and an increase in the personal savings rate to 6 percent of earnings from a low of 2 percent during the boom years.

The recent announcement of the Sahara’s springtime closure speaks to the challenges resort operators — particularly those at the lower end of the market — face to simply break even in a market where hotel occupancy and average daily room rates hover well below 2007 highs. Other resort operators regularly take blocks of rooms out of circulation, reducing expenses while boosting the rates they charge for remaining rooms.

All of the uncertainty and a sense of powerlessness raise doubts about the sustainability of an economic recovery.

“People don’t know what is going to happen two months from now. They wonder, ‘Where am I going to put my money? Maybe I’ll put it in the mattress,’ ” Daneshvary said.

He recalls the weeks after the 9/11 attacks, and how they depressed the Strip economy. Visitation collapsed as people were too frightened to travel on airplanes or simply felt it was inappropriate to have a good time during such a dark moment in our nation’s history. More than 15,000 Strip jobs vanished. Tens of thousands more were reduced to part-time hours.

President George W. Bush memorably called upon Americans to spend money, shop and help reverse the sputtering economy. General Motors offered no-interest loans for trucks and cars. The Las Vegas Convention and Visitors Authority introduced a gentle ad campaign that told Americans it was still OK to travel. They did, and by 2003 the economic boom had been fully restored.

It’s not that simple today, Daneshvary notes. Most homeowners can no longer tap into the piggy banks that were their homes, with the aid of home equity loans. Credit card interest rates are much higher, and many American workers wonder if they are just a down business quarter away from a fresh round of layoffs.

Quite simply, it’s a much tougher challenge to jump start the economy in an era of tight money. Meantime, legislative decisions being made from Washington to Carson City with program cuts, layoffs and wage and benefit reductions for public employees have fostered an uncertain environment that raises questions about the strength of our fledgling recovery, which has bolstered corporate profits and stock prices but little else when it comes to the fortunes of many Americans.

“We neither have more consumers nor wealthier consumers,” Aguero said. “Besides, the consumers don’t have any more to give.”

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