The US economy continued to recover from one of the deepest recessions in US history. US gross domestic product (GDP) has advanced for the last three quarters, with growth averaging 3.7 percent over that period. Personal consumption expenditures, accounting for almost 70 percent of GDP, have rebounded, posting an average gain of 2.7 percent in the last three quarters. Still, much of the recent surge in GDP can be laid to firms restocking inventories and replacing equipment and software that became obsolete during the recession. Firms had maintained relatively low inventories during the recession, anticipating reduced demand for consumption items. Restocking inventories is a clear sign that firms expect consumption demand to continue to expand in the coming quarters. Likely, the best news concerning the US economy is recent job growth. The US economy added 290,000 non-farm jobs in April, the first strong expansion experienced in over two years. The unemployment rate edged up slightly to 9.9 percent, but the increase is attributable to growth in the workforce as public optimism improves and people begin looking for work.
Optimism about future economic growth has yet to spread to Nevada. The unemployment rate remains high at 13.6 percent, and employment is down 4.3 percent over April 2009. Taxable sales and gaming revenue, which make up more than 2/3 of the state budget, are down 4.5 and 0.7 percent, respectively. In our December outlook, we anticipated that the retail-trade sector would shrink further in 2010, and this appears to be happening. In all, the state economy appears to have hit bottom, but unlike the national economy, we have yet to see any signs of a turn-around.
The economy of Southern Nevada has yet to post any significant gains. Employment is off 5.7 percent and the unemployment rate stands at 13.8 percent. Taxable sales have fallen by almost 5 percent from February of 2009, whereas gaming revenue appears to have bottomed out, falling by less than 1 percent in March over the previous year. The February gaming revenue numbers for Clark County were very strong, but the return to year-over-year declines experienced in March indicate that casinos are still not out of the woods. The visitor volume numbers are also quite disappointing. After recent growth in local visitor volume in January, the number of visitors declined again in February. More pointedly, the visitors that are coming are paying less for rooms and spending less in shops and restaurants. The construction sector fared even worse, with a scant 66 residential- and 9 commercial-building permits issued in March. Given local analysts’ estimates of 25,000 to 30,000 excess residential units in the Las Vegas Valley, we are unlikely to see any improvement in the construction sector soon.
We anticipate that the local recovery will lag the national recovery by 12-18 months. Until the US economy recovers a substantial share of the 8.4 million jobs lost in the recession, consumers’ budgets will likely remain tight. Since tourism relies heavily on discretionary spending, it will be some time before people will open their wallets and splurge on a luxury trip to Las Vegas.