Tuesday, October 28, 2008

Las Vegas Economic Roundup

Tourism is down and gaming revenue continues to fall - driving unemployment rates significantly higher across the valley - leading to more foreclosures and driving state legislators to substantial budget cuts. Yes, the dominos are falling!

Las Vegas Airline Woes:

Traffic at Las Vegas's McCarran International Airport falls again

The number of people flying to and from Las Vegas fell 13.2 percent in September to 3.37 million, the largest year-over-year decline since the months following Sept. 11, 2001, and the 11th consecutive monthly dip.

It’s another major indicator that the woes of the airline industry, dire economic news and an emerging recession are battering the Southern Nevada economy that blossomed with cheap oil, easy consumer credit and the mistaken notion home and property values were on a non-stop upward trajectory.

Airlines deliver about half of the nearly 40 million people who visit Las Vegas annually. And last month their results were dismal compared to September 2007, which appears now to be near the end of the boom that began when the local economy roared back from the post-Sept. 11 recession.

“As the economy weakens it creates more uncertainty,” Scott Kirby, president of US Airways, said recently during a discussion of the airline’s quarterly earnings.

The uncertainty translated to fewer Las Vegas passengers for nearly all the major carriers at McCarran International Airport.

Non Gaming tourists:

Las Vegas casinos go empty as risk-averse patrons play safe

LAS VEGAS: With just days to go until the US presidential election, financial gloom hangs like a pall over visitors to Las Vegas. Wayland Ferguson, a New Mexico resident in town for a conference, said he had no interest in gambling or splashing out during his trip. “People need to get back to the idea of living on less than they make, not more than they make,” he said, as he stood with friends outside one of Las Vegas’ attractions, a mall modelled after the forum in ancient Rome. “We’ve become a society that lives on credit. We need to increase our savings.”

During the good times, the gaudy neon lights of the famed Las Vegas strip fuel dreams of hitting the jackpot, and even breaking the bank at the casinos. For Justin Pagliarulo, from Georgia, the biggest worry was his retirement fund, which is invested in financial markets through a 401(k) plan. “I’m losing lots of money on my 401(k) right now, so that’s a big concern,” said Pagliarulo, who still found some money for a flutter in the casinos, and visit an upscale show by Cirque du Soleil.

Visitor numbers and gaming revenues on the strip are off by 1.5% and 6.7% respectively in the year to August, and hotels and resorts are having to entice visitors with discounted rooms to keep the roulette wheels spinning.

While visitors are clearly feeling the pinch from the downturn, they are divided over whether Democrat Barack Obama or Republican John McCain is the best pick to get the economy back on track.

“I think whoever gets elected is going to have a real problem,” said McConnell. “And it’s going to take more than four years to get us out of it.”

How bad will it get for many of these very leveraged casino operations?

Are the Las Vegas Strip casinos facing bankruptcy?

Some of the biggest losers on Wall Street are based right here in Las Vegas.

The stock prices of casino companies are tumbling and the company that owns the Venetian is seeing the most dramatic decline of them all.

Last Thursday, the Las Vegas Sands Corporation hit an all-time low - a low of about $8 dollars per share, compared to $148 per share last year.

Experts News 3 has spoken with say Las Vegas in general is a financial house of cards showing some ominous signs of collapse. (Funny, that was the point and name of one of my first Las Vegas posts back in 2006: Las Vegas—A House of Cards Bound to fall

The casino sector has been squeezed harder than other industries as consumers cut back their spending.

The downturn has also hit the Chinese gambling enclave of Macau, where Las Vegas companies like the Sands, Wynn, and MGM-Mirage have spent billions of dollars to remake Macau as Asia's Las Vegas.

But back in the real Las Vegas, the financial risk remains high as tens of thousands of new hotel rooms become ready to open within the next year or two. Unfortunately, the projected level of customer spending may not come along as planned.

"You have Wall Street really turning its back on the Las Vegas Strip," says News 3 financial analyst Steve Budin.

"I think it's definitely possible they (some of the gaming companies) might consider bankruptcy," says Budin.

Anyone want to buy a Mall or three?

High-end Las Vegas Strip malls on the market

What do you get for the person who has everything? How about a shopping mall?

Three of the largest Strip shopping malls in Las Vegas are now up for sale: the Fashion Show Mall, the Grand Canal Shoppes at the Venetian, and the retail shops at the Palazzo

News 3's Jesse Corona says they're not being sold because of low sales numbers, but because of how poorly their parent company is doing.

General Growth Properties (GGP) says of the 20 malls they operate, the Fashion Show, Venetian Grand Canal Shoppes, and the Palazzo are three of their flagship properties. So why are they selling them off?

General Growth Properties has seen their stock plummet 96 percent in the last year, down to about $2 per share. They're also looking at a combined $900 million loan payment on both the Palazzo and Fashion Show Mall, due at the end of November.

But just how well are these malls doing?

Steve Barry sells timeshares at a booth in front of the Fashion Show Mall. He says that foot traffic at the mall is down at least 20 percent.

Barry says his company has had to lay off almost half of their workforce in the last two months and that he personally has a hard time believing that the sales numbers at any mall are higher right now when compared to last year.

The Gaming loss spillover effect?

Closing time coming a lot earlier these days

Businesses forced to reduce hours to cope with economic slowdown

The lights are out already and the door is locked at the LaCabana Mexican Restaurant on Martin Luther King Boulevard.

Only the fading sun provides a peek into the deserted interior. It is well before 6 p.m. on a weeknight, but the once-popular neighborhood spot is among the growing number of businesses opting to cut their losses by cutting their hours.

Limiting business hours is being seen as a Band-Aid to stop the financial bleeding in an economic setting that has already proven to be worse than the previous downturn. The last recession included the aftermath of the Sept. 11, 2001, terrorist attacks and the dot-com collapse. LaCabana owner William Jacobs recently reduced the 17-year-old restaurant's hours of operation by more than 25 percent.

Jacobs was hit especially hard by the economic skid because he also owns the Paradise Lounge next door. The bar's revenue helped to cushion the drop in business at LaCabana for a while, but it is also seeing fewer patrons.

The high-spending construction workers and laborers have vanished, he lamented, leaving the restaurant near Alta Drive to try to survive on new budget-conscious lunch specials.

"We cut off about five hours a day during the week," he said. "We cut the equivalent of three workdays off our schedule." That also meant letting four of his 11 employees go.

Not far from Jacobs' restaurant is a another valley staple, El Sombrero on Main Street. The Las Vegas favorite of three decades once benefited from a resurgent downtown. Nestled on an old industrial stretch, an auto repair shop serves as one of El Sombrero's neighbors. Customers liked the old Vegas feel, however, and would come in until 10 or 11 p.m. Owner Jose Aragon shuts his doors at about 4 p.m. now.

"Oh yes, we barely made it through the year so far," he said.

The El Sombrero owner has cut about a third of his business hours, from being open 64 hours a week two years ago to about 44 today. Aragon kept on just a small staff, now made up of family members. The ghost-town atmosphere after lunch, and his advancing years, made it impractical to keep the doors open late anymore.

Restaurants aren't the only businesses that are turning out the lights earlier or more often these days. The Curves gym at the Las Vegas Beltway and Decatur Boulevard has opted to cut hours in the middle of the day. Owner Bob Ansara said membership was "stagnant" for the past 18 months, except for about six people dropping memberships for undisclosed reasons. One trainer said the sagging economy was a factor.

"We've heard a lot of women, with the economy, were calling up to say they had to drop their memberships," the employee said.

Trainers, also, were asked to accept reduced hours.

The change in Curves' hours -- closing roughly three hours in the middle of each weekday and opening four fewer hours on weekends -- is consistent with the Curves corporate model, Ansara said. He had gone outside the normal hours to see if they would prove profitable. They weren't.

It doesn't surprise economist Keith Schwer that businesses are resorting to reducing hours.

"We know that furniture, autos and home repairs are the first to go, then restaurants," he said. "Gyms also fall into the discretionary category."

Tourism has stumbled, hurting the local economy even more, he said.

"We know in the Las Vegas economy, that people's incomes were less and prices were going up." Schwer said. "Visitor volume is down."

Reduced hours are showing up in more than the "closed" signs on shops' doors. The state of Nevada Department of Employment Training and Rehabilitation is seeing a trend in the rising numbers of unemployment claims. More and more Nevadans are putting in claims for "partial unemployment," said Jered McDonald, a department economist.

Rising Las Vegas Unemployment Rate:

Nevada jobless rate climbs in September (Las Vegas up to 7.4%)

Nevada's unemployment rate rose to 7.3 percent in September, its highest level in 23 years, as more than 102,000 Nevadans were out of work, according to a report released Monday.
The state Department of Employment, Training and Rehabilitation report shows the seasonally adjusted rate was up from 7.1 percent in August—and also shows Nevada above the national jobless rate of 6.1 percent in September.

Bill Anderson, chief economist for the agency, said rates in the state's population centers also increased, led by the Las Vegas area at 7.4 percent, up from 7.1 percent. In the Reno area, the rate hit 6.9 percent in September, up from 6.6 percent in August.

Anderson expects Nevada's statewide rate to get worse, averaging about 8.6 percent for 2009. That means about 120,000 people out of work. He also noted the number of Nevadans filing for unemployment is the highest since shortly after the Sept. 11, 2001, terrorist attacks.

Nevada's economy depends heavily on industries that have been hit hardest by the economic downturn, including housing, construction and tourism. Two massive casino construction projects on the Las Vegas Strip have stalled. The state continues to lead the nation in rates of foreclosure.

The downturn has forced state and local governments to make massive cuts in services, and has some looking for new sources of tax revenue.

Budget cuts and foreclosure rates

Deep budget cuts in Nevada

CARSON CITY, Nev.—Nevada may cut deeper into its budget, on a percentage basis, than any other state in the nation, budget chief Andrew Clinger says.
Clinger attended a National Association of State Budget Officers meeting in Washington, D.C. last week and learned that many of his counterparts around the country were reporting cuts of 5 percent and 6 percent. That's well below the 14 percent to as much as 20 percent that Nevada may have to cut in the coming two-year budget cycle, which starts next July.

The biggest reason for Nevada's budget problem, Clinger said, is a slumping housing market along with a drop in auto sales and high fuel prices, which either kept some tourists from coming to the state or reduced the amount of money they were able to spend once here.

Clinger also said that in the second quarter of 2008, one in 43 households in Nevada got a foreclosure notice. Nevada's rate is now four times the national average and is the highest in the nation. California is in second with a rate of one home in 65 and Arizona third with one in 70.

Nevada saw a total of 24,657 foreclosure filings in the second quarter of 2008. That's up 26 percent from the first quarter of the year and up 147 percent from 2007.


FOFOA said...


This article made me hungry for Mexican food, but dammit, nothin's open. Oh wait, Del Taco's still open... brb ttyl

Las Vegas said...

This article is so depressing. It reminds me of the beginning stages of Honolulu when I left. Airlines were going bankrupt and pulling out. Restaurants were closing down. Many of the Mom and Pop eateries had closed their doors. It is a sad time right now for our country and it can be seen in tourist hotspots such as Vegas. Hopefully, things will turn around and sooner rather than later.

Anonymous said...

One hot spot left in town might be any two for one buffet, $3 senior movies Mon thru Thurs, any type of restaurant discount...lets face it, people still go out here to eat or watch movies. Other than that, a slowing trend is noticed. Sky high prices for shows doesn't help. Small or none existent casino payouts are another sign of casino fatigue in Vegas. If the house doesn't bring in a billion a month statewide, they are always crying to the media.

Randy said...

Anon 3:02,

Regardin Buffets - I made a similar comment in the open forum last night:

" With the downturning local economy, Buffets are now being used to draw in new casino customers."

" Example: Last weekend the wife and I used a 2 for 1 coupon at Silverton for their Seafood/steak, wine/beer buffet. $21 bucks for the two of us to eat all the Snow Crabs, Steak and Prime Rib we could hold plus a few alcoholic beverages - WHAT A DEAL! Eagerly Awaiting the next coupon deal. Haha!"

Hopefully a sign of things to come!

Las Vegas 7:29

Regarding your comment:
" Hopefully, things will turn around and sooner rather than later."

Agree, but I don't think it's in the cards (no pun intended). I believe we are dealing with a major sea-change in the Nations economic condition and it will take a decade or better to resolve itself.

Excerpt below is from a LV article that I posted back in 2007:

LV Housing Bubble Update


Growth in LV has been absolutely phenomenal over the last decade--a decade of prosperity driven by cheap credit (both business and personal) and rising asset values, creating a consumer wealth effect and influencing a carefree lifestyle. People (both local and tourist) had lots of cheap, easy money and access to huge credit lines if they needed more to spend in the City of Sin (all in the name of having a good time and living for the here and now). That is however coming to an end! Credit has started to dry up, (right now it is mainly influencing mortgage credit--months from now it will impact a myriad of other areas—Commercial credit, Car loans, Credit Cards, etc) and the huge party bills are coming due.

As stated in previous posts, Las Vegas’s economy has been completely dependent on the discretionary spending of vacationers (Airlines, Hotels, Restaurants, Shows, Gambling, Drinking, Strip Clubs, etc) and the city lacks any real or substantial diversification. When tourism & discretionary spending finally start to decline (due to National negative savings rates, rising inflation and falling home values), gaming revenues will drop, hotel occupancy rates will fall, and thousands of layoffs will follow.

Those locals who find themselves unemployed will quickly find that they have very limited options, as the entire hotel & gaming industry will be feeling the same economic pains. The lack of industry diversification in the city will be a killer!

Currently, with housing values falling, the wealth effect is under strain and many people are having difficulty understanding what has happened to the housing market, while most are still holding on to the false hope it will recover somewhat quickly. In the meantime, these folks have a mortgage that must get paid, all while coping with higher gas, food prices, tuition, insurance, energy bills, etc. Many are already strained to the max and the black hole of upcoming teaser rate mortgage resets will finally set them over the edge. (Note: refinancing will not be an option for those who have purchased within the last 3 years because they are already underwater; additionally many who have owned for decades used the cheap rates and housing boom to extract available equity--to live beyond their means; so they too cannot refinance). This same problem is beginning to impact millions from across the nation!!!

Additionally, the home ATM machine that people used to draw money out of regularly has finally dried up, so they have ended up resorting back to the credit cards (the same ones they paid off with that home equity line of credit last year) just to make daily ends meet. This is going to end horribly!!!

BOTTOM LINE: When tourism starts to wane, due to people running out of discretionary cash, gaming/hotel industry layoffs will follow, cascading the impacts of the already doomed Valley housing market, as more locals will be unable to meet their monthly mortgage obligations. Reduced spending levels, increasing layoffs, magnified home foreclosures and tightening credit conditions will cause a doubly painful domino effect on the Commercial real estate market and in due time, the impacts will be extremely painful to the entire economy. State Tax revenues will tank, crys for budget cuts will prevail and the government layoffs to follow will only exacerbate/compound the situation.

I think one of my readers summarized the situation best: “ Las Vegas lives off the margin. Good times, fat margins; lean times, no margin. LV has no plan B, there's nothing to take up the slack from a decrease in visitor volume. Even dollar rich foreigners aren't going to hold up employment that is based on a volume service industry and housing construction.”

Guess only the future will tell...

For more Articles on the Las Vegas economic condition, please scroll down the right hand side of my Blog and look for the numerous hyperlinks under "Las Vegas Downturn"



Audree said...

The article is a depressing one. Hopefully, things will get better. By the way, thanks for sharing this article. More power.

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