When it comes to fortune telling, nothing is ever certain, but a handful of industry experts share their thoughts on Nevada’s economy in 2014. This year’s predictions offer more good news than has been reported in Nevada Business Magazine’s annual Economic Forecast in the last few years. While most business executives are proceeding with caution, they seem to agree the worst of the economy is history and the immediate future looks a bit brighter.
What other indicators light our economic path into 2014?
Omni channel shopping is one of the new trends heading into 2014, says Brian Wachter, director of government and public affairs, Retail Association of Nevada. Consumers are buying from brick-and-mortar, online, with mobile phones and any combination available. “They’re using all multiple avenues and are becoming more informed consumers,” said Wachter.
That trend feeds into the recovery of Nevada’s retail sector, which began mid-2010. Annual growth rate overall since then has been about 6.1 percent, and 2013 saw retail averaging 5.4 percent growth. Traditional retail categories, like clothing, electronics and cars, have been slower to bounce back, but even those categories have seen an increase of 5.5 percent since 2010, and in the first eight months of 2013, an increase of 7.2 percent.
Retail anticipates an approximate 4 to 4.5 percent increase in sales in 2014 with traditional categories expected to increase a possible 6 to 7 percent. With unemployment still high, some traditional retail category sales may reflect consumer fatigue instead of income growth – some things, like replacing a car that’s stopped working, just can’t wait any longer.
Taxable sales continue strong in Washoe County, according to Brian Bonnenfant, project manager, Center for Regional Studies, UNR; first and second quarters 2013 saw 7.5 percent growth quarter over quarter, higher than the state’s Economic Forum projected growth of 2 to 4 percent. Going forward, Bonnenfant suggests ramping down closer to the Economic Forum predictions, which are still a healthy clip.
Consumer confidence relies on disposable income, so an increase in retail sales should indicate growth in the employment sector. However, Nevada still has the highest unemployment rate in the U.S., a status we’ve held almost continuously since the recession started, said Dr. Stephen Brown, Center for Business & Economic Research, UNLV.
The leisure and hospitality sector has been driving job growth in Reno for a couple years, said Bonnenfant, adding 1,200 new jobs between August 2012 and 2013, though not within hotels or casino hotels, a sub-sector that makes up 40 percent of the job growth. This means that the other 60 percent of job growth in the sub-sector is coming from arts, entertainment and recreation, which is a surprise, because those services aren’t necessities. Without an uptick in visitor volume to explain them, they’re likely being purchased by residents.
Prior to the recession, Nevada’s job gains were the strongest in the nation, according to William Anderson, chief economist, Department of Employment, Training and Rehabilitation (DETR). “During the recession our job losses were more pronounced than any other state in the nation.”
That trend is finally starting to change. Employment levels started creeping up in mid-2011. Now Nevada’s job growth is stronger than 34 other states, said Anderson. In 2013 some 22,000 to 23,000 new jobs had been added to Nevada’s economy by November, and it’s expected some 25,000 to 30,000 new jobs will be added in the next year.
Job growth is across the board in every sector, including construction, which is up between 4,000 and 5,000 jobs compared to 2012. Construction statistics are dominated by Clark County, said Brown. In the last few years there have been fairly big gains percentage-wise in construction but coming off of such a low base that numbers look almost flat compared to historical figures. This is especially true in Reno-Sparks, which is at such low levels that even one project more or less makes the market look extremely volatile.
Heading into 2014 there are solid gains in rural communities driven by gold prices, though both prices and employment have moderated a bit. Many of the new Nevada jobs are concentrated in the south.
Two industries hardest hit by the recession were construction and hospitality, both now on the rise. Construction turned positive mid-2012 and is still trending up. “To keep that in perspective, we’re trending up off cyclical lows,” said Anderson. “Prior to the recession we had approximately 150,000 construction jobs and that number went all the way down to 50,000, so we’re coming off of a very low floor.”
According to Bonnenfant, employment has been a disappointing indicator in 2013 where data from August 2012 to 2013 shows job growth is flat, around 0.1 or negative 0.1 percent month over month change in the Reno-Sparks Metropolitian Statistical Area (MSA).
“I know the Department of Labor is projecting 2 to 3 percent job growth both statewide and for the Vegas and Reno MSA, but so far we’re underachieving on the Reno MSA,” said Bonnenfant. Recent losses of some 2,000 jobs came mostly from within the professional sector, normally a high wage sector; the ripple effect of such losses often means the local economy suffers as spending drops, although there’s been no sign of that yet. In mining and manufacturing, Northern Nevada lost 700 jobs in the past year.
Las Vegas experienced record-breaking visitor volume in 2012 with 39.7 million visitors and gaming revenues of nearly $9.4 billion; 2013 is expected to close with another record-breaking number. For 2014, with new hotel rooms coming online, there’s no official forecast but, rather, hope of breaking that newly set record, said Kevin Bagger, senior director of Strategic Research & Analytics, Las Vegas Convention and Visitors Authority (LVCVA).
In 2014 LVCVA will continue marketing Las Vegas for conventions and meetings, an industry sector that’s up 3 percent. McCarran International Airport is increasing international air services, including flights to and from South America and Panama, and new British Airways flights. In Northern Nevada officials are also bringing in new international flights.
“Leisure travel has picked up nationwide this year and we’ve seen similar numbers in Northern Nevada,” said Chris Baum, President and CEO, Reno-Sparks Convention and Visitors Authority (RSCVA). After having been flat for five years, room rates are finally going up to the tune of $25 million addition to the economy. Building on existing success, RSCVA continues to market Northern Nevada for sporting events from martial arts competitions to bowling championships.
In 2014 all of Nevada hopes to see itself on the Silver Screen. The passage of SB165 provides incentives to encourage movie production to come to the Silver State. Given Nevada’s proximity to California and easy flights in and out of Hollywood, the future in film looks good.
The film industry is a nice addition to the state’s economy, because only approximately 51 percent of visitors gamble now. Gaming finally reported taxable gain or revenue first quarter of 2013 with a 3.5 percent increase, 4.8 percent second and 1.6 third quarter, according to Bonnenfant. Because there’s no corresponding visitor volume uptick, it’s likely casino gaming is heavily local, a trend that will probably continue given the ever-expanding Indian gaming venues.
Meanwhile Northern Nevada continues to draw visitors from Northern California and RSCVA is launching a $1.4 million consumer campaign in the Bay Area to promote the region.
Economic development functions as a market driver, market indicator and, to some extent, as a market forecast system.
Companies in the energy sector, in distribution and international companies are looking at Southern Nevada, according to Tom Skancke, president and CEO, Las Vegas Global Economic Alliance (LVGEA). There are increased inquiries from companies in surrounding states, specifically California but also from other states that are more active in recruiting the same companies we want to recruit. “We’re going up against the big guys like Texas, Utah and Arizona, and we’re winning,” said Skancke.
The draw? Proximity to California for companies that want to market there without being there, Nevada’s business climate, incentives program and catalyst fund, and a Governor who picks up the phone and calls prospective companies.
The crystal ball indicates 2014 will see continued interest in Southern Nevada and an increased need for big box commercial real estate facilities, which may drive some construction.
In Northern Nevada, phones are ringing off the hook. Visits from company executives checking out the region are up from four a month two years ago to 10 a month in 2013, said Mike Kazmierski, president and CEO, Economic Development Authority of Western Nevada (EDAWN). Eighty percent of the companies that visit choose to locate in Nevada.
“Given a lag time between six months and two years, this increasing activity will result in increased jobs in 2014, probably in excess of our goal, which is 2,100 new jobs,” said Kazmierski.
There’s also an increasing number of expansions to Northern Nevada, as companies whose executives were in wait-and-see mode begin acting. Some six to eight fairly significant expansions are anticipated during 2014, where the past year saw only a few.
Industries expected to continue to thrive in Northern Nevada in the coming year include aerospace and defense, clean energy, tourism, back office support and call centers, as well as logistics and distribution, including e-commerce.
Approximately 40 percent of Northern Nevada prospects are from California. With California’s policies increasingly viewed as “anti-business” and an aggressive marketing plan designed to attract California companies, 2014 could be an incredible year for economic development in the area.
After the roller coaster of the boom and bust in Nevada real estate, Southern Nevada has just started to see increased demand for residential and commercial real estate and vacant land, said Brian Gordon, CPA, principal, Applied Analysis. Some stabilization is occurring and home prices are up 50 percent from the floor just a year and a half ago. Going forward some sustainable demand is expected rather than the skyrocketing increases in prices. At the same time, Gordon doesn’t expect median home prices to fall off a cliff, either.
“Residential inventory over the past couple years has been woefully low,” said Gordon. The market fell below historical standards and availability hovered around 1 to 1.5 percent in the past year and a half, causing some frenzied activity of the sort seen during the housing boom of the early 2000s. As housing prices and availability increased to around 2.8 percent, the market approached a more balanced supply and demand environment. As long as home prices are still well below construction costs there’s no incentive to build new homes, stated Brown.
In Northern Nevada new home construction is largely on hold, in part because of the distressed home market. With cash investors having bought up homes to turn around, those homes could be released on the market at any time.
“So the new home construction industry up North is walking a tightrope,” said Bonnenfant. “They’re increasing home sales. New home sales will reach about 750 this year after about 550 last year, so it’s starting to creep up. Inventory resale of existing homes is way off, 33 percent down. Resale homes are down to 2,000 listings where we used to be at 3,500, 4,000 listings.”
The limited number of existing homes for sale drove prices up, making homeowners think their homes were worth a mint, said Bonnenfant. The result? Artificially inflated prices that caused buyers to go back on the fence and investors to back away from the market. The new home construction market is expected to be very hesitant in 2014.
Commercial real estate vacancies are trending downward but remain near all-time highs. Modest improvements are expected with retail and industrial products leading the way and office and professional space trailing because downsizing and backfilling excess capacity precludes significant market growth.
The retail commercial real estate sector, which historically carries 3 to 4 percent vacancy rates in anchored centers, skyrocketed during the downturn to 9.6 percent in Southern Nevada, according to Gordon. Now starting to stabilize, average asking rents are $1.48 per square foot heading into 2014. However, while the recession saw many store closures, 2013 saw retailers starting to look at expansion again.
“The industrial sector appears to have turned the corner and started heading in a positive direction as the markets reported approximately 3 million square feet of demand in the first nine months of 2013,” said Gordon.
The Silver State Health Insurance Exchange website went live in October, so it’s too soon to be making predictions, but Jon Hager, executive director, is aiming for target enrollment of 118,000 by the end of March 2014.
Federal mandates have already predicted the future of health insurance. In the meantime the industry anticipates a certain amount of uncertainty. As the Obama administration continues to change the rules, even the experts don’t know what to expect. Anecdotal stories of employers dumping the health insurance coverage and putting their employees on health insurance exchange programs abound. While there may be instances where employers are backing away, in some cases the change means employees go from two or three choices for the type of coverage they have and the amount they themselves pay to having a dozen or more plans available.
Approximately 98 percent of large employers offer health insurance coverage to help find and retain talent. That’s expected to continue. Employers with large numbers of part time workers around 30 hours a week may keep hours strictly less than 30 to avoid both providing coverage and paying federal penalties.
One trend expected to continue is that of employers dropping coverage for spouses if the spouse can obtain coverage through his or her own employment or find individual coverage.
The Bottom Line
Experts are predicting that 2014 will start slow, but will be headed in the right direction. Overall, they expect a slow climb with a few bumps along the way. They agree that economic predictions are never a sure thing, especially with so many variables and uncertainty surrounding such things as the future of healthcare.
However, given the economic projections from the last few years, it appears that 2014 will be a better year for most businesses in Nevada.