Economists and industry analysts can, and will, argue over whether an economic recovery is as strong as numbers seem to indicate. However, they do agree the numbers show Nevada’s economy is on track to strengthen and add more jobs in 2015 because many of the impediments to faster growth have subsided.
The unemployment rate has dropped to its lowest level in more than five years, real estate is on the rebound, manufacturers and construction companies are adding jobs and gaming, especially on the Strip, has shown consistent improvement.
“We are still in recovery,” said Brian Bonnenfant, project manager of The Center for Regional Studies at the University of Nevada, Reno. “It’s not at pre-recession levels, but it’s a sustainable recovery.”
Bonnenfant said Nevada is growing at 2.5 percent or 3 percent annually, which is still under the 4 percent growth the state was enjoying in 2005 and 2006.
This year’s predictions offer more good news, a trend that was reported in Nevada Business Magazine’s annual Economic Forecast last year. While most business owners remain cautious as we head into 2015, economists believe Nevada’s future is bright.
More importantly, the state’s economic forecast is sustainable, and not driven by speculation in a number of crucial industries, including the housing market. So, what will other sectors do in 2015 to continue Nevada’s recovery?
After the roller coaster of the boom and bust in Nevada real estate, Southern Nevada has started to see values continue to climb as new home prices are now approaching $300,000 and resale prices are at $175,000, according to Applied Analysis in Las Vegas.
“We are well off from where we were at the bottom of the recession,” said Brian Gordon, a principal with Applied Analysis. “Values are probably more in line with where they should be. We’ve seen the trend line start to flatten, but we are at or above where they finished last year.”
Gordon said we’ve gotten off the roller coaster that housing prices have been on over the last decade. He also described housing prices as more “sustainable,” with price appreciation averaging about 10.6 percent, down from a pre-recession high of about 30 percent.
Currently, the new home median price in the Las Vegas area is $290,357, up 8.6 percent from $267,254 last year. The median existing home closing price is $173,927, a 12.2 percent increase from $155,000 in 2013.
Going forward into 2015, Gordon believes demand is expected to remain stable, as price increases remain affordable for both new home and existing home sales.
Gordon did caution that prices are escalating on vacant land. “Home builders are more aggressive on land acquisition,” he said.
For example, the Cadence community in Henderson has sold off more than 225 acres of the total 2,200 acres to home builders.
Gordon said the improving real estate market extends to multi-family units. “Apartments are coming,” he said. “Demand is up across the board. Some residential parcels are selling for $400,000 an acre, with the broader market seeing prices of $300,000 an acre.”
In Northern Nevada, Tesla Motors Inc.’s planned $5 billion battery factory is expected to have a modest impact on home and apartment prices over the next few years.
Most residents believe that impact will be in Fernley and Silver Springs, but others believe the housing demand could stretch as far as downtown Reno. Prices and rents will be impacted as workers move into the region to work in the factory or in the thousands of jobs that are created to support the new industry.
Bonnenfant said he wasn’t sure if the housing market in Northern Nevada in 2015 would be a catalyst for growth. But, housing prices are appreciating between 4 and 6 percent without the speculation that affected the real estate market before the recession.
“Single family home prices are very maintainable,” Bonnenfant said. “They should remain that way as long as we stay affordable.” He added that the region still has some 20,000 approved and un-built single-family homes.
Nevada has suffered from one of the highest unemployment rates in the country over the last few years. The state lost 175,000 jobs during the recession, driven by dramatic losses in the construction, gaming and manufacturing industries.
That trend is finally behind us as the job market continues to accelerate. The employment market has recovered creating nearly 100,000 jobs since 2010, said Bill Anderson, chief economist with the Nevada Department of Employment, Training and Rehabilitation (DETR) in Carson City.
“From 2010 to 2013, we added about 60,000 jobs in the private sector,” said Anderson. “Through the first nine months of 2014 we added 40,000 private sector jobs. By the time the year ends, we would have created more than 100,000 jobs.”
Now Nevada’s job growth is stronger than 48 other states, said Anderson.
“We had one of the strongest economies in the nation prior to the recession,” the veteran economist said. “We were outperforming every other state. But during the recession, we had the most pronounced job losses in the country. It wasn’t until 2011 that we started making up for those losses.”
Anderson said the recession hit discretionary income, consumer spending and construction especially hard, due to the collapse of the real estate market throughout Nevada. Those were the two most significant drivers of our downturn, Anderson said.
“We were ground zero for the recession,” Anderson said, adding that Nevada’s reliance and downfall due to a collapsed housing market was similar to Arizona, Florida and Georgia.
Job growth is now up across almost every sector, including construction, which Anderson is projecting will add 6,700 jobs this year. He said by 2017, Nevada will create 9,800 construction jobs annually.
“We lost 100,000 construction jobs during the recession,” Anderson said. “Employment in the construction sector bottomed out at 50,000. By the end of 2017, we are going to be back up to about 89,000 construction jobs.”
Construction jobs statistics are dominated by Clark County, which has a population upwards of two million. The job gains in construction have been fairly large percentage-wise. However, Anderson said, coming off of such historic lows those numbers look impressive.
Anderson’s construction employment outlook includes workers hired to build Tesla’s factory in the Tahoe-Reno Industrial Center in Storey County, along with new gaming and retail projects on the Strip.
The factory, which is expect to open in stages and be fully operational by 2017, will create up to 6,500 on-site jobs. The Governor’s Office of Economic Development (GOED) forecast 16,000 indirect jobs will be created to support the factory and its employees.
Sixteen percent of the jobs are expected to be in retail, 13 percent in wholesale and 12 percent in construction, administrative and support services. Professional, scientific and technical services at 11 percent; food services at 8 percent and healthcare at 8 percent.
“It’s a relatively broad based recovery,” Anderson said. “The leader in job growth this year is professional and business services, which is up by 10,400 [jobs]. Leisure and hospitality is up by 9,300 jobs. Everything except mining is showing improvement.”
Professional and business services include jobs such as tax preparers, temporary employment and accounting and legal firms.
He said employment in mining was down by about 300 jobs, which was expected. Anderson said mining was not a declining industry, but the job figures showed the industry was moderating.
Heading into 2015, Anderson expects the solid jobs gain to continue, driven by modest gains in construction, gaming and hospitality and professional and business services.
“Employment in the Las Vegas leisure and hospitality industry hasn’t recovered as fast as nonfarm employment, increasing by only 1.2 percent and 2.3 percent in 2012 and 2013, respectively,” according to research published by the Center for Business and Economic Research (CBER) at UNLV. “As the U.S. and the world economies continue to improve and bring more visitors and spending to Las Vegas, we expect leisure and hospitality employment to continue growing.”
DETR projects year-over-year employment growth from 2014 through 2017 at 49,000 jobs annually.
While employment growth is the key to an overall economic recovery, retailers believe a good holiday season this year will increase consumer confidence and carry the sector into 2015. Bryan Wachter, senior vice president with the Retail Association of Nevada, says, for the most part, he expects a steady increase next year.
“We have been optimistic,” Wachter said. “There has been lots of new [retail] development and new stores coming out of the recession. It’s a sign that consumers are willing to spend again. Our biggest take-away from 2014 is that reinvestment.”
The Retail Association of Nevada anticipates a 4 to 5 percent increase in sales in 2015. Wachter said holiday hiring is expected to reach 7,600 in Nevada, with 10 percent to 12 percent of those employees carrying on in full-time positions.
“Nevada has continued its upward trend in terms of both employment and taxable retail sales,” Wachter said. “Total employment in Nevada has experienced 44 months of consecutive year-over-year growth, while retail trade employment has shown 47 months of consecutive year-over-year growth. On the spending side, overall taxable retail sales have had 49 months of consecutive year-over-year growth. The addition of seasonal hires will likely add to overall holiday spending this year.”
Gaming and Tourism
As retail spending continues its upward trend and employment growth continues to outpace other states in the nation, casino companies are hoping for a return to the more free spending days before the recession.
However, one gaming industry analyst says don’t hold your breath as gaming in post-recession Las Vegas has changed.
David Schwartz, director of the Center for Gaming Research at the University of Nevada, Las Vegas, says spending habits have changed as domestic visitors have less equity in their homes and wages have stagnated.
Schwartz said domestic tourists, especially visitors from California, are spending less, while international tourists are spending more during their visits to Las Vegas.
“There has definitely been a shift in spending,” said Schwartz. “Greater festivlization is a big part of that shift.” Las Vegas is now home to festival-type events such as the Electric Daisy Carnival, the Life is Beautiful festival and, soon, Rock in Rio shows on the Strip.
He said they are gambling less but are willing to spend more on hotel rooms, food and beverage and nightclubs. In other words, domestic tourists, who are still recovering financially, are setting budgets and their attitudes towards risk have changed. That shift to less risk means fewer dollars are being spent at the gaming tables and slot machines.
On the international side, a lot of the additional spending is due to growing markets in Asia. Properties owned by Las Vegas Sands Corp., Wynn Resorts Ltd. and MGM Resorts International are a pipeline into the Strip, both in terms of money and tourists. “They are doing a lot more gambling, especially baccarat,” Schwartz said.
Baccarat is one of the most lucrative games for Las Vegas casinos as it is greatly influenced by wealthy players from Asia Pacific. Las Vegas Strip baccarat playing grew by 11.9 percent in 2012, with a more modest gain of 3.2 percent in 2013.
According to research published by CBER, baccarat is expected to show gains this year and next, by 2.4 percent and 1.8 percent, respectively.
Gaming for all other table games increased 2 percent in 2012, and last year, it decreased by 2.5 percent. Stephen Brown, director of CBER, expects gaming from table games other than baccarat to increase by 1.3 percent this year and 2.5 percent in 2015.
Meanwhile, slot machine activity on the Strip decreased in both 2012 and 2013 by 1 percent and 1.1 percent, respectively. In his report, Brown wrote that the downward trend is expected to reverse itself this year and next, with predicted increases of 1.6 percent this year and 1.9 percent in 2015.
In Northern Nevada, most areas have seen gaming revenues decline, with South Lake Tahoe and Carson Valley area posting modest increases. Visitor volume remains strong with 4.6 million in 2013, and 3.6 through the first nine months of 2014, according to the Reno-Sparks Convention and Visitors Authority.
Las Vegas experienced strong visitor volume in 2013 with 39.6 million visitors and gaming revenues of $11.14 billion. This year is expected to be a record year, as Las Vegas will pass the 40 million visitor mark.
“We are really close,” said Dawn Christensen, senior director of communications for the Las Vegas Convention and Visitors Authority. “We’ve had nine months of consecutive growth and many have been record-setting months.”
Those record breaking trends are expected to continue in 2015.
Christensen attributed the rise in visitor volume to people coming to Las Vegas to experience the new casinos that have opened recently, including The Cromwell, The Linq and SLS Las Vegas.
“It’s been a banner year for openings for us,” she said. “It brings people back and new people come.”
Christensen said demand for conventions and meetings has reached a five year high, which is being driven by a broader economic recovery and companies being willing to spend on meetings in Las Vegas. She said even the big shows are seeing growth, with CES setting an attendance record this year with 160,000 attendees, and using a record of 2.06 million square feet of exhibit space.
Overall, convention attendance is up 3.7 percent. McCarran International Airport is also helping visitor numbers with increased international flights. Flights between Reno and Europe have never before been available. However, that’s changing in 2015 with nonstop service to and from London.
The new addition comes on the heels of an announcement that Reno-Tahoe International Airport will be offering nonstop flights this month to Guadalajara, Mexico. The twice-weekly flights to Mexico will have an estimated $20 million economic impact on the region annually.
Economic Growth and Tesla
Economic development has been a hot topic over the last several years, as officials statewide continue to implement their strategies to diversify Nevada.
Nevada’s economy has been driven by gaming, construction and mining for years. However, the state is now pinning its hopes for diversification on Tesla Motors and the development of unmanned aerial vehicles, or the drone industry.
Bonnenfant credited the Economic Development Authority of Western Nevada (EDAWN) with the activity over the last couple of years. He said California’s high tax environment is also responsible for companies moving to Northern Nevada.
“Reno is not going to be Las Vegas,” Bonnenfant said. “What we are trying to be is a diversified economy with transportation, warehousing, manufacturing and technology companies.”
Bonnenfant indicated that Las Vegas still relies heavily on casinos, while Northern Nevada, which used to be gaming centric, took a while to wean off that industry. In addition, Reno is now keeping UNR graduates home, many of whom start technology companies in the city’s tech corridor downtown, which has been nicknamed “Startup Row”. Bonnenfant says Reno is changing its reputation with the help of Apple and Tesla. The area’s low taxes are also drawing e-commerce ventures as much as gamblers.
In Las Vegas, the efforts to diversify the region’s economy has been overseen by the Las Vegas Global Economic Alliance (LVGEA). No doubt gaming is still king, with about $12 billion in developments planned, including Genting Group’s $4 billion Resorts World Las Vegas.
The development is located on the 87-acre Strip site that was once home to the Stardust and where the unfinished Echelon stands. The LVGEA has been successful in recent months attracting diversified companies to Southern Nevada, including Creative International, R.W. Garcia and Catamaran. That trend is expected to continue in 2015.
Experts are predicting that growth in Nevada next year will be steady, and not the roller coaster ride the state experienced in the years leading into the recession in 2008. A good sign, economists say as more companies and job opportunities arrive here looking for shelter from high tax states.
However, problems do persist both nationally and locally. Nevada’s education system still ranks near the bottom, funding issues abound and wages are stagnant for many Nevadans. The Southern Nevada economy is dependent on leisure and hospitality, and large changes to economies that send tourists to Las Vegas could compromise our ongoing recovery. Overall, Bonnenfant expects growth between 2.5 percent and 3 percent in 2015. And, as the recession has taught the Silver State, any growth is welcome.