Las Vegas - A House of Cards Bound to fall
Early on, many considered my bleak outlook ludicrous, as past history has shown Vegas to be quite resilient and recession proof.
Well, seems that's not quite the case anymore.
August's statewide unemployment rate for Nevada was nearly triple the level from the recession's beginning in December 2007, when joblessness clocked in at 5.2 percent.
The August jobless rate in Nevada now stands at 13.2 percent as the recession continues to hammer the state and metropolitan areas - Nevada's jobless rate is now the highest on record - dating back to 1976 - and is currently the second highest unemployment rate in the nation, trailing only Michigan at 15.2 percent.
See chart I created below for visual reference - data from Nevadaworkforce.com
The Las Vegas unemployment rate is even worse than the State in which it's located - 13.4% (Note: I anticipate this rate will soon jump again as the ~ $10 Billion CityCenter construction project is finished up and thousands of construction workers are laid off)
The following comments regarding our true state & city unemployment picture came from the Las Vegas Review Journal (maybe they are finally catching on?):
“The employment department's published rate isn't a complete accounting of joblessness. The numbers come mostly from surveys of households and businesses. They don't include discouraged residents who've quit seeking work, nor do they account for underemployed workers who can find only part-time jobs. A state economist said in August that current overall numbers likely run close to 20 percent, and Keith Schwer (director of the Center for Business and Economic Research at the University of Nevada-Las Vegas) agreed with that analysis.”
Above comments sound very similar to a recent post of mine: True US Unemployment Rate > 20%
Southern Nevada’s two largest industries, tourism and construction, have shed the most jobs, while only the education and health care sectors have added payroll.
With ~ 183,000 Nevadans now out of work, the recession has nearly depleted the state’s unemployment fund, forcing Nevada leaders to apply for up to $264 million in federal loans.
The money would cover jobless benefits through the end of the year, but some officials said Nevada could need more than $1 billion to get through 2010 if the economy doesn't make a dramatic turnaround.
Guess what folks - it's already baked in the cake and we'll be needing the $$!
Closing - how we got here and looking ahead:
Growth in Las Vegas was absolutely phenomenal through the last decade leading up to 2006/7. This was a decade of prosperity driven by cheap credit (both consumer and business) and rising asset values - spawned by the bubble policies of both our government and the (non) Federal Reserve. These monetary drivers created a consumer wealth effect and influenced a carefree lifestyle - tourists had lots of cheap, easy money and access to huge credit lines (HELOC, etc) 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 lifestyle however has now come to an end and the huge party bills have come due (for the consumer, the city, the state and nation).
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 diversification.
Now that tourism & discretionary spending have declined (due to collapsing property values, sinking retirement plans, lack of credit and rising unemployment rates) gaming revenues have cratered, hotel occupancy rates have fallen, construction has ceased and and thousands of local layoffs have followed.
These unemployed locals quickly find that they have very limited options, as the entire hotel, gaming & construction industry is feeling the same economic pains and no one is hiring - the lack of industry diversification in the city has been a killer!
Currently, with economists and gvt officials talking about green shoots and lights at the end of the tunnel, many consumers are holding on to the false hope a recovery is right around the corner. Unfortunately they will be sorely disappointed. Yes, there is a light at the end of the tunnel, but - unbeknownst to most - it's a high-speed, fully loaded freight-train barreling out of control.
Let's face it folks, the average American is now terrified about his/her financial future as the consumer wealth effect quickly disappeared in a puff of housing bubble released hot-air. Additionally, Joe-six pack is now in debt up to his eyeballs - and due to lack of new credit availability - he's unable to roll-over his debt as in years past. This has caused consumer spending (70% of the US economy) to fall sharply, leading to higher unemployment - feeding upon itself, etc.
The Las Vegas economic situation is bad now, but we're no where near the end - unemployment will continue to rise as tourism flounders under the growing nationwide economic strain while the discretionary spending of those who do decide to come to Vegas continues to decline...
Note: All this on top of our national economic crisis and the potential currency collapse (and 3rd world status) that lies in our future - induced by trying to bail out each/every one of our financial institutions and the attempt to print our way back to prosperity - it just won't work folks.
Other recent links on Las Vegas:
Las Vegas Homes $60 SF
Las Vegas: 81% Mortgage holders upside down
Las Vegas Housing Price Update
Snapshot: Las Vegas Commercial Real Estate
Las Vegas: Lady Luck has run out