Las Vegas' Losing Streak - Unemployment highest since 1993 - Homelessness growing

Las Vegas is facing one of the deepest slumps in its history and it's being felt across the board - from the worst real estate market in the country, to falling gaming revenue, weak retail sectors, construction shutdowns, slumping tax base, budget deficits, high unemployment, etc.

For many of Economicrot's regular followers, this news is not new, as we've been documenting the LV downturn since 2006 (see "Las Vegas Downturn links" - scroll down right sidebar to locate).

Anyway, it's been a while since this Blog has covered anything related to Vegas, so allow me a few minutes to bring you up to date - a snapshot in time if you will.

Big Business Woes:

Yahoo News - Oct 2nd :

In Las Vegas these days, even billionaires are getting their credit checked. On Sept. 30 Las Vegas Sands founder Sheldon Adelson announced that he would ante up $475 million from his personal fortune to buy preferred stock in the company, which will pay 6.5% interest over five years. Adelson's notes will convert at $49.65 per share, a considerable climb from the $31 at which they currently trade. The move shored up Las Vegas Sands' balance sheet. Without the extra cash, the owner of the marble-lined Venetian resort, with its Canyon Ranch spa and indoor gondola rides, would have found itself in violation of its bank loan agreements.

It's like that all over Sin City right now, as the casino industry there faces the steepest slump in its history. In July, casino revenues on the city's famed Strip fell 15%, to $820 million. They are down 7% citywide so far this year. Shares of many top casino operators have sagged 70% from their peak last year. Las Vegas Sands' stock dropped 13% on Oct. 1, after Standard & Poor's said that despite the cash injection, the company remains under review for a possible downgrade because of weak business conditions and a potential slowdown from Sands' Macau operations.

Next door to the Venetian, mogul Stephen Wynn has been busy negotiating with his bankers. With profits at his flagship Las Vegas resort down 28% in the second quarter and a new $2.3 billion casino hotel due to open in December, Wynn paid $4 million in fees and persuaded his grumbling bankers to change the covenants on his loans in mid-September. The moves allow Wynn Resorts to maintain a higher debt-to-cash-flow ratio without having to pay higher interest rates to lenders. "We wanted to make sure the banks didn't have too high an expectation for us," Wynn explains, "just in case things get worse."

Wynn's old company, MGM Mirage, is busy trying to raise the additional $500 million it needs to complete a $3 billion bank financing for its giant CityCenter project on the Strip. The $9.2 billion resort, due to open in December 2009, is the largest private construction project in the country. MGM and its joint venture partner, the investment firm Dubai World, may end up kicking more of their own money into the project. But the partners may face more hurdles next year if they can't sell all the condominiums they hope to at the site. UBS casino analyst Robin Farley figures CityCenter will still have as many as one-third of its 2,600 condominiums unsold by opening day, meaning the cost to MGM and its partner will rise by another $600 million.

The tough financing environment has prompted some operators to delay projects. In August, Boyd Gaming shelved its $4.8 billion Echelon resort after encountering difficulties financing a mall and two hotels with joint venture partners. Nine floors of the main tower had already been built.

Casino operators are trying to lure gamblers with discounts and other promotions. Anthony Curtis, who runs Las Vegas Advisor, a magazine and Web site for bargain-hungry Las Vegas visitors, says the discounting is most evident in room rates, some of which are down as much as 30% from last year. Casinos are throwing in other perks as well.

Reached on Sept. 29, shortly after the House of Representatives voted down the proposed $700 billion bailout package, Wynn was furious -- but not because Congress failed to pass the proposal. "I am totally disgusted as an American by the leadership shown by both parties," he said. Wynn thinks Washington should force bankers to renegotiate loans to troubled homeowners, much as they have for the big Las Vegas operators. "Those assets should stay where they were created," Wynn screamed. "Bankers will say tomorrow, 'O.K., let people stay in those homes.' (Home prices) will go back to $250,000. The people that live in them will pay what they can afford." And then, just maybe, they'll plan Las Vegas vacations again.


Wall Street woes hit on, off Strip - Oct 3rd

Wall Street financial woes have played havoc with the Las Vegas real estate and development community, but even with a congressional bailout package, the future remains dicey for some projects.

The national credit crisis has hit all sectors of the development community from housing to office to retail.

The postponement in August of Boyd Gaming's Echelon, which was under construction when it was halted, reflects the tough conditions in securing financing.

The current environment is going to create challenges for all sectors of the economy, especially the development community that needs capital, said Brian Gordon, a principal with Applied Analysis. Not only have there been delays in projects on the Strip, but projects valleywide could be pushed back because of limited access to capital, he said.

"There are a number of planned office, retail and industrial projects throughout the valley that are not only competing with existing product on the market today, but also with financial markets for limited capital," Gordon said. "That will likely cause a shift of timing or cancel plans altogether."

Las Vegas has been at a greater risk than the rest of the country because its housing meltdown was greater than the rest of the country's with homeowners losing more value. The city is also at risk because it relies on tourism and any economic slowdown cuts into travel.

Many homebuilders have had their lines of credit called back from the banks even when they are in full compliance with their loans, Sullivan said. Without that access to capital, they have to cut back their operations and halt projects. It has been a challenge for six months and gotten progressively worse, he said.

Monica Caruso, spokeswoman for the Southern Nevada Home Builders Association, said in addition to all the challenges homebuilders face when it comes to lenders, the current crisis makes it tough to sell a home when someone with a credit score exceeding 700 can't get a mortgage.


Las Vegas Job Market Woes:

Harrah's Entertainment plans to lay off more workers - Oct 4th

Harrah's Entertainment confirmed it is preparing another round of layoffs and hourly reductions at its Las Vegas properties.

Company officials late Thursday declined to say how many workers will be let go.

"The country is experiencing a historically difficult economic period," said Jan Jones, senior vice president of communications and government relations for Harrah's. "The gaming industry, as nearly all consumer business in the country, has been negatively impacted by the difficult circumstances of the economy."

The casino operator, which owns and operates Paris Las Vegas, Bally's, Bill's, Flamingo, Imperial Palace, Harrah's, Caesars Palace and Rio locally, has already cut nearly 1,500 Las Vegas jobs this year, according to an article published last month by Reuters.

The decision comes as revenue and visitor volume to the Strip continue to drop.

Harrah's is not alone in continuing to cut jobs and adjust employees' hours as businesses across the valley continue to adjust to the economic downturn.

Bill Lerner, a Las Vegas-based gaming analyst for Deutsche Bank, said some properties have been closing off gaming table pits for extended hours, cutting restaurant hours and even closing rooms in hotel towers.

"All of those carry employment," Lerner said. "Over the last two to three weeks, the behavior of visitors to Las Vegas has changed noticeably. They're spending very differently, and less, than they were prior to that. It's 100 percent related to the things people are watching on CNN and CNBC with the economy and the credit environment."

MGM Mirage, which owns 10 properties on the Strip, has cut nearly 1,500 jobs this year locally, according to the Reuters article.

Station Casinos conducted another round of layoffs in early September, saying the number of employees who were affected represented "a very small percentage" of the workers at its 17 properties.

Las Vegas' unemployment rate hit 7.1 percent in August, the highest rate since July 1993 when the rate was 7.2 percent, according to the Department of Employment, Training and Rehabilitation.

Jacob Oberman, director of gaming research for CB Richard Ellis, said the housing market will need to rebound before consumer spending returns and the job cuts slow.


Nevada's jobless rate will increase - Oct 3rd

Economic forum told state is in a recession - CARSON CITY -- Unemployment in Nevada will jump to an average monthly rate of 8.6 percent next year and remain at that rate in 2010, state economists told the Employment Security Council on Thursday.

"This is sobering news," Employment Security Division Administrator Cindy Jones said after economists on her staff made the prediction.

If Nevada's unemployment reaches 8.6 percent in 2009, it would be the highest rate since 9.7 percent in 1983. The state's jobless rate in August was 7.1 percent, the highest in 23 years.

Anderson and economist David Schmidt said the state economy has been sputtering because of the crash of the real estate market, the decline in home values and the reluctance of residents to spend what money they have.

Anderson said that in the past, employment jumped dramatically after the opening of each megaresort in Las Vegas, but this isn't happening anymore. The City Center project on the Strip is expected to employ 12,700 people when it opens in November 2009, but the state's jobless rate will increase even with this project, he said.


Poor Economy Translates Into More Las Vegas Layoffs - Oct 3rd

Las Vegas' tourist driven economy is feeling the impact of tighter budgets as local businesses are forced to layoff workers.

Westgate Resorts books time shares for Planet Hollywood but today the nation's largest timeshare company shed hundreds of workers. They've been saying it for years, "Build it and they will come." However, the financial crisis has put the construction of some new Las Vegas resorts on hold.

Kahndijah Carter and Ashley Simms were laid off. "We are all laid off. I have been at this job almost a year so it's really hard," said Carter. "No one is safe right now. I never though this would happen," Simms said.

Simms and Carter both worked in the call center, selling timeshares and vacation packages. But Westgate officials say the occupancy numbers just weren't looking good in Las Vegas and the economy is to blame.

"A lot of people aren't going to be able to travel in and you don't need to make as many reservations," Froehlich. He couldn't say how many people were laid off. Simms says it was at least 200.


Layoffs Hit Sunrise Hospital - Oct 2nd

Sunrise Hospital laid off 57 people Thursday, citing money as the reason. They came from all over the hospital, from medical to administration, and this may not be the end. The cuts equate a two-percent reduction of the overall workforce.

The two big reasons were more uninsured patients needing treatment and fewer insured patients electing to have procedures done. The State of Nevada also announced last month it was cutting Medicaid and more than half of the patients in the children's hospital here are on Medicaid.


Las Vegas Housing Market

Metro U.S. Home Prices Fall on Higher Foreclosures - Oct 2nd

Home prices dropped in 24 of 25 U.S. metropolitan areas in July, led by declines in Las Vegas and the coastal cities of California, as foreclosures depressed prices and accounted for a fifth of all sales.

Las Vegas had the biggest drop on a per-square foot basis, falling 33 percent in July from a year earlier, New York-based real estate data company Radar Logic Inc. said in a report today. Los Angeles, Phoenix, Sacramento and San Francisco each dropped about 28 percent. Three of the five worst-performing markets were in California.

``Buyers are increasingly reluctant,'' Radar Logic Chief Executive Officer Michael Feder said in an interview. ``There has been an awful lot of talk about the declining of the housing markets.''

Foreclosures/Homelessness

Addressing the Las Vegas foreclosure crisis - Oct 2nd

One of the unfortunate outcomes of the housing slump in the Las Vegas Valley is the effect the record number of foreclosures is having on neighborhoods. Entire city blocks resemble checkerboards of properties for sale or in foreclosure mixed with homes that aren’t on the market.

Sadly, many of the foreclosed homes have yards that have not been kept up. Multiply that by several homes on a block and you have a neighborhood many prospective buyers may want to avoid.


New face of Valley homeless - 3 times the number of homeless vs same time last year

The struggling economy continues to hit Main Street hard. More and more families are losing their homes, forcing some to live on the streets.

Catholic Charities says they've noticed that within the last several months, the face of the homeless has changed. It isn't just the single male sleeping on the streets anymore. Now, it's the family who was once living on easy street.

"Mary" is a mother of three. She and her husband both have jobs, a large mortgage, and a car payment. And, like many valley residents, they are just trying to make ends meet.

"Bills were due - we just needed a little help for today," says "Mary." "It's costing us more because we have a $1,295 mortgage, car note, kids expenses, diapers..."

Phillip Hollon with Catholic Charities says their role of helping only those people without shelter has drastically changed over the last year.

"Last year at this time, we were serving about 50 families on any given day. Now we're serving about 150 families on any given day," explains Hollon. "‘It's a very different clientele than we've seen in the past. Many years ago, people were on the street walking to us. Now they're driving to us."

Because of the housing crash, high gas prices, and inflation, more and more families are asking for help. And some are even ending up on the streets.

"The types of individuals we're seeing are struggling to make ends meet," says Hollon. "They're forced into making decisions - whether they can pay their rent, or their car payment, or putting food on the table."

Within the last few months, Catholic Charities has seen the number of hot meals they serve dramatically increase from around 600 to over 800 every day.

"We've been struggling ourselves to try and help the community," says Hollon. "With all the needs that are out there, it has tripled in the past year."

Linda Lera-Randle El runs "Straight from the Streets." She says the increase is so great, that the state needs to step in and help out because things are bound to only get worse.

"Poverty is usually last on the list," explains Lera-Randle El. "It's the hardest hit and it's going to cost the most. It's just like a natural disaster almost - only it's with us always."




Regards

Randy

Social Consequences of an economic meltdown?

Back in Jan 08, I pondered aloud several questions related to the potential Social Implications of (what was then) a looming economic crisis. Turns out, many readers were wondering the same and this was one of my highest traffic posts ever.

If you haven't already done so, read the info at the following link then come back to read the rest of this post.

SOCIAL IMPLICATIONS of a SIGNIFICANT ECONOMIC DOWNTURN



Well, nine months have passed since those words were written and there can now be no doubt (1) that this crisis is one of the most significant economic downturns in history and (2) the Massive bailout package being worked is just a bandaid to slow the controlled financial implosion. Even John McCain realizes this and recently stated in his debate with Obama: "This is not the beginning of the end, but the end of the beginning - if we come out with a package that will keep these institutions stable..

With that digested and the knowledge things are likely to get far worse, what can we anticipate for our future - just how bad could things get for the little guy living in the suburbs - trying to raise a family?

I'll refrain from trying to list all possible consequences, as there are far too many potential outcomes, but I would like to highlight several major consequences that could be initiated by a worst-case financial panic...

Note: I'm not trying to scare anyone here, but merely trying to create an awareness and food for thought - so that you can use the information to better prepare your family (in the event the worse-case scenario actually happens).

Let us hypothetically propose the economic crisis intensifies:

Hundreds more banks/financial institutions implode and the FDIC runs out of money - a nationwide run on the banks ensue; consumer credit has consistently gotten worse and available credit-card credit-lines have finally been turned off/reeled in - unemployment skyrockets due to the lack of new credit/spending; inflation rages as the dollar falls sharply; the economic crisis deepens and trillions in unpayable derivative contracts unwind quickly - stock markets collapse around the globe and the crushing pressure is exacerbated by foreign holders of US Debt who finally rush to the exit doors.

The Gvt panics and Stock Markets are closed indefinitely while ATM machines, banks and electronic commerce are shut down across the nation (as the government tries to figure out what to do). People grow anxious as their credit cards and debit cards don't work, and with no cash on hand, they can't buy food or gas... Those who do have cash rush to fill up their gas tanks and empty the shelves at their local grocery stores. The real economy comes to a screeching halt as deliveries of food, gas, etc can no longer make it to market.

Social unrest and general panic set in as our just-in-time economy breaks down. People are confused and scared while the government repetitively tries to reassure that they have everything under control. Hysteria eventually sets in as social chaos, looting, and roving gangs terrorize the masses (taking what they need from the unprepared). Similar situations take place across the nation as people who were on the fringes of society become hungry/desperate and/or take advantage of the lawless situation.

Martial law is ultimately declared and National Guard troops are deployed to major cities around the nation - to help restore order, distribute food, etc.

So many unknowns

Could this actually happen? I don't know - you be the judge; but it's probably better to be a prepared alarmist than an unprepared victim... Think about it.

If you've watched Paulson, Bernanke, Bush and the rest of our worried leaders over the last couple of week, you've probably been able to sense their state of alarm - Yes, they truly realize how big this crisis is...

What can you do to prepare?

I could list a thousand things here from generators, flashlights, etc, but the most important (I believe) are:

1) Have at LEAST a couple of weeks worth of non-perishable food/water on hand
2) Have enough cash on hand to make it through a possible electronic commerce shutdown
3) Maintain close relationships with friends/neighbors (help each other out)
4) If you have a gun, know how to use it - to protect your family, friends and valuable assets (cash/food).


Closing:

Yes folks this could be bad, but we Americans are an industrious/resolute bunch and (though it will take some time) we will find a way to pull out of it.

However, be aware: regardless of the ultimate significance of this downturn, America is likely to forever change as the US Dollar loses it's reserve currency status in the not too distant future.

At a MINIMUM, this economic crisis will cause our standard of living to fall and our cost of living to increase significantly.

Bottom Line:

Our future is uncertain, and we're definitely in for some difficult times ahead, but the world will NOT end - and we will survive.

Again, this post was no meant to scare, but to inform by thinking outside the mainstream box. Use this information as you may, but it's probably not a bad idea to prepare for whatever the outcome.

Best regards

Randy

Bailout or no bailout - what's the difference?

Many Americans are being brainwashed into believing that our economic woes can be resolved with the "saving grace" of a $700 Billion taxpayer bailout package - being crafted over the weekend.

Well folks, It just ain't going to happen that way...

This package (if approved) may slow the speed of our debt implosion, but the debt implosion train has already jumped the tracks and can not be stopped. A Massive Recession or Depression is well on its way.

If it's coming anyway (you ask), why not try to slow it down with the bailout?

Well, there are several very harmful side effects of passing this bailout - the most significant being: a falling US Dollar/inflation for every American household.

What do I mean?

Well, if passed, we will still experience the same (albeit slower) consequences of the debt implosion: unemployment figures will rise significantly and the value of our assets (homes, cars, boats, toys and other expensive gadgets) will tumble as people flood the market with these items to (1) get rid of the added household expense and (2)use the proceeds to help put gas in the car/food on the table.

The difference will be: If approved, we will experience a significant increase in the cost of living - simultaneously with debt implosion/falling asset values, etc...

Food, gas, clothing, imports, etc, will all skyrocket in price - significantly increasing the cost of maintaining a household.

Ultimately, this bailout will not be enough money and other bailouts will likely follow (due to this precedent) and the Massive Recession/Depression will turn Hyperinflationary in nature - Sticking it to the average Joe from both ends.

Closing:

I just finished watching the Presidential debates. In a nutshell: I wasn't too impressed with either of them, but one key comment stuck and resonated within my head throughout.

When questioned on the pending bailout package and the economic crisis, John McCain stated" "This is not the beginning of the end, but the end of the beginning - if we come out with a package that will keep these institutions stable."

A keen realization that this package is just a bandaid - to slow the bloodletting, with the understanding that there will be much more bloodloss to come.


Hold on to your hats folks!


Randy

We Ain't seen nothin Yet

Since the end of the housing boom in 2005, I've been stating the housing correction in Las Vegas would be significant and we'd likely see a 50% haircut (peak to trough) in home prices. Thus far, odds are looking pretty good that I'll ultimately be correct (Maybe even too optimistic).



Four years of gains wiped out in just one.

Home prices across 20 major U.S. cities have dropped a record 15.3% in the past year and are now back to where they were in the summer of 2004, according to the Case-Shiller home price index released Tuesday by Standard & Poor's.

Las Vegas saw the biggest declines, with prices falling 26.8% in the past year.

With so many homes on the market and foreclosures rising, prices are likely to keep falling, said Patrick Newport, an economist with Global Insight

"We expect the 20-city Case-Shiller composite to fall another 15% to 20%, to a bottom at the end of 2009, translating to a peak-to-trough drop of 30% to 35%," wrote Michelle Meyer, an economist for Lehman Bros.

After accounting for 4.5% inflation over the past year, real home prices are down in every region in the nation.

Closing:

Thus far, the decline in bubble-region home prices has been quick, but I still feel we've got a long way to go. Significant banking/credit issues will soon to come to light again while unemployment numbers are due to increase significantly. Combine these issues with billions in Option Arm Resets, massive inflationary pressures and soon-to-be crucified equities markets and the result is a toxic Witch's Brew of economic misery that will continue to force massive downside price pressures across the nation.



Bottom Line: We ain't seen nothing yet!

Regards
Randy

DOW Surges on good news!

Thursday's retail sales reports came in twice as high as expected, while jobless claims rose significantly more than expected.

Meanwhile, today's inflation data came in mixed: May's officially reported (manipulated) Consumer Price Index rose a larger-than-forecast 0.6 percent, driven by everyday essentials like gas and food -- the biggest increase in six months. However, the (severely skewed) "Core CPI", which excludes energy and food prices, came in as expected, with a mere 0.2% rise in May.

Additionally, today's Consumer Sentiment figures, impacted by rising unemployment concerns and record gas prices, fell hard -- to the lowest registered since 1980 (Note: that would be a 28 year low for my math challenged readers).

All this great news, provided a boost to the DOW and it regained ~ 220 points over the course of the last two days. (sarcasm for those who don't know me)

Here's an interesting report from Yahoo finance, Market Update:

Stocks spiked in the final minutes of Friday’s session, ending the session with a 1.5% gain. The day’s optimistic tone was established early on as oil prices stepped lower and core economic data met economists’ expectations. The session’s advance helped position stocks to finish the week just below the unchanged mark. (My Comment: I wonder who was doing all the last minute buying? Hmm...)

With that behind us, lets take a gander at other rosy economic reports of the day:

Foreclosures Rise 48% in May as Repossessions Double

June 13 (Bloomberg) -- Banks repossessed twice as many homes in May and foreclosure filings rose 48 percent from a year ago as falling house prices trapped borrowers in mortgages they couldn't afford, RealtyTrac Inc. said in a report today.

The percentage of total outstanding U.S. homes in some stage of foreclosure in the first quarter was 2.47, the Washington-based Mortgage Bankers Association reported. The average over the last 30 years has been 0.98 percent, the industry group said.

Lenders took possession of 73,794 houses in May, more than doubling the 28,548 REOs in May 2007, RealtyTrac said.

``Right now, lenders are afraid to lend and buyers are afraid they'll be under water in a year, so unless something dramatic happens we're going to continue to see the trend go in the wrong direction,'' said Rick Sharga, RealtyTrac's vice president of marketing.

Corn surges to record highs

NEW YORK - Corn prices surged to a new record this week, dashing meat producers' hopes for lower animal feed costs.

Corn jumped to a record of $7.30 a bushel on the Chicago Board of Trade Friday after hitting new record prices for six days in a row.

The surge in price was mainly due to wet weather in the Midwest, which has drowned crops. Investors and analysts are now fearing supply of the grain could be in jeopardy since much of the crop has already been damaged.

US Airways to slash 1,700 jobs, cut more capacity

US Airways Group Inc said it will reduce its work force by 1,700, or about 5 percent, and will cut more capacity than planned and introduce new fees as the airline industry battles record fuel prices and a weakening economy.

Downgrade Flattens Fifth Third Bancorp

Fifth Third Bancorp's dividend may be doomed, according to one analyst who foresees a halved dividend and capital infusion plan in the regional bank's future.

On Friday, BMO Capital Markets Analyst Peter Winter downgraded Fifth Third Bancorp to market perform from outperform on expectations that net charge-offs will be much higher than anticipated. "Housing conditions and the overall economy have gotten much worse since March 31," Winters said.

Ford to Have More `Targeted' Buyouts at U.S. Plants

June 13 (Bloomberg) -- Ford Motor Co. will conduct additional ``targeted'' buyouts at some U.S. plants as the world's third-largest automaker shrinks its workforce to match dwindling sales.

The plan for more early departures underscores the pressure on Ford after losses of $15.3 billion over the past two years. Even with 38,000 U.S. production workers taking buyouts since 2006, the automaker may have too many plants and employees amid a 12-year decline in U.S. market share.

Chrysler raises prices 2 percent on 2008 inventory

Chrysler LLC is raising prices by an average 2 percent on most of its remaining 2008 vehicles in response to rising costs of steel and other raw materials.

The increase will take effect on vehicles shipped to dealers starting Monday, and won't affect vehicles already in dealers' inventories.

Chrysler's sales were down 25 percent in May, a month in which the whole market dropped 11 percent when compared with May of last year. Through the first five months of the year, Chrysler's sales were off 19 percent, with huge drops in larger vehicles that make up most of its lineup.

Moody's may cut Lehman's 'A1' rating on ouster of CFO

Moody's Investors Service on Friday placed Lehman Brothers Holdings A1 rating on review for a possible downgrade. The move follows Lehman's announcement that Chief Financial Officer Erin Callan is leaving. The ratings agency noted that although the purpose of the management change appears to be an effort to assure accountability for its losses and to strengthen risk and financial controls, the decision may, in fact, further erode investor confidence.

Lehman Employees Lost $10 Billion as Shares Declined

June 13 (Bloomberg) -- Lehman Brothers Holdings Inc.'s employees lost at least $10 billion as shares of the fourth- largest U.S. securities firm plummeted 74 percent from the high last year.

Office Max shares fall on index change

NEW YORK (AP) -- Shares of office-supply retailer OfficeMax Inc. hit a 52-week low on Friday, after Standard & Poor's said it would replace it on the S&P 500, effective at the close of trading

Bad economy means less access to college

Federal panel says economic downturn means fewer loans for some college students

The struggling economy is likely to make it tougher for college students to obtain and pay for loans this fall, members of a federal education panel said Friday.

The panelists, hosted by the U.S. Department of Education's Advisory Committee on Student Financial Assistance, said students face higher interest rates on loans issued by private entities like banks or may not qualify for loans at all as lenders tighten their requirements in light of the sub-prime mortgage crisis and other economic factors.



Regards
Randy

DOW Outlook and Economic Reports

The Dow Jones Industrial Average fell another 205 points today - closing at 12,083.

Since the start of trading last Friday, the DOW has lost 4% of its value and we're now only ~ 150 points away from the key downside resistance levels I warned you about last week: DOW -- Trouble Ahead?

The issue now is: we may see some additional losses later this week, as a potentially toxic mix of retail sales, jobless claims and inflation data is due for release tomorrow and Friday -- could this trigger a new selloff? Will we actually fall below key downside support? Will the Plunge Protection Team be ready and save the day once again?

Economic Reports due tomorrow:

- Import/export prices @ 08:30 EST (Consensus: 2% change)
- Jobless Claims @ 08:30 EST (Consensus: 365K)
- Retail Sales @ 08:30 EST (Consensus: .5% & .7% excluding autos)
- Business inventories @ 10:00 EST (Consensus: .3% increase in inventories)

Economic Reports due Friday:

- CPI @ 08:30 EST (Consensus: 0.5% & .2% excluding food and energy)
- Consumer Sentiment @ 10:00 EST (Consensus: reading of 59.8)

NOTE: Friday's CPI and Consumer Sentiment are biggies! Take a look at the Sentiment chart below -- last month's University of Michigan report showed U.S. consumer confidence fell to a 28-year low in May. Another grim reading on Friday could wreak havoc on the markets.

In Closing: Regardless of what the shills are saying, all is not well with our world economy and I doubt the DOW will hold up the the increasing downside pressures... Taking a quick peek as I pen this brief post -- even the Asian Markets are tanking tonight: Major World Indices .

- Shanghai is down > 3% and below 3,000
- Hang Seng is down 2.5%
- Nikkei 225 is down 2.5%
- Taiwan Weighted down 2.5%
- Straits Times down 2%

Bottom Line: We may very well see an interesting close to this week -- w/DOW possibly closing below key support levels. If it DOES break through this first resistance level, get ready for a serious fight in the days/weeks ahead, as the PPT will defend 11,700 - 11,650 with everything in their arsenal... And if that level doesn't hold, look out below!

Best regards and good night

Randy

NAFTA Superhighway and North American Union: a Scary Reality

I've been warning you about the North American Union (NAU) for quite some time now: AMERO and the North American Union.

My thoughts on the NAU: Mexico has Cheap labor and Canada has Abundant Natural Resources

Once again, just like NAFTA, the NAU will lower America's Standard of living through job outsourcing.

I hope we can all agree that corporate bottom lines were the main reason for outsourcing our US manufacturing base... So today we receive cheap imported goods at our borders, and these goods get handled by Union dockworkers and then get put on American Trucks (high labor costs cutting into corporate profits). Suppose now we now take all these cheap imports from Asia and offload them in Mexico (Mexican labor with Mexican wages and few benefits), put them on Mexican trucks and ship products to final destination (anywhere in US or Canada) via the NAFTA Superhighway.

Ultimately, this move increases bottom-line profits for BIG BUSINESS, and we all know big business controls our elected representatives through huge campaign contributions, high power lobbyists and special perks...

End result: That Giant Sucking sound (loss of American Jobs) will merely get louder and our standard of living continues to fall -- until it becomes cheap enough to employ American workers once again.


Anyway, the reason for this post is: a friend of mine over at ECONOMY IN CRISIS just posted up a new article illustrating that, though officially denied, the plan is still intact, yet few seem to take an interest -- while those who do get marginalized. What's it going to take folks?


NAFTA Superhighway and North American Union: a Scary Reality

The NAFTA Superhighway is not a myth, but instead represents a road leading to a troubled future. In an attempt to facilitate and create a North American trade bloc, quickly transporting cheap imported goods from China to America’s many Wal-Marts – our leaders are creating a North American Union and a massive highway – four football fields wide – running from Mexico to Canada. The highway promises to import a surplus of goods, destroy any country-side in its path and ease a process of outsourcing American jobs south-of-the-border to cheaper rates of pay and lower environmental standards.



While most other major national newscasters have blindly accepted the government’s line that the “NAFTA Superhighway” is a “myth,” Lou Dobbs has refused to be fooled. In search of the truth, Mr. Dobbs sent investigative reporter Bill Tucker to Texas to see for himself.

The evidence Mr. Tucker uncovered was powerful, compelling, and shocking. It confirms everything we here at the NAU War Room have been saying about the government’s hidden drive to absorb America into a “North American Union” (NAU) with Canada and Mexico, anchored by a massive “NAFTA Superhighway” designed to speed cheap Red Chinese and foreign goods from Mexico into the U.S. and Canada.

NAFTA Superhighway and North American Union: a Scary Reality

Airlines: More problems for Las Vegas Strip

Fewer Flights to Las Vegas may mean fewer tourists and pain for resorts


The nationwide economic downturn, combined with extremely high fuel prices and declining profit margins, has caused five airlines with services to/from Las Vegas to file for bankruptcy or cease operations since December. Additionally, US Airways recently announced it would reduce flights servicing the valley by some 20% come August, while American stated it would cut some flights after the peak season is over.

All this bad news leads to less airline competition and fewer available seats, that when combined with new fuel surcharges and luggage fees will soon put an end to cheap flights to and from Las Vegas -- reducing the number of tourists visiting and cutting into the discretionary budgets of those who decide to come anyway -- compounding the situation we're already starting to see:

- Gaming revenue falling
- Casino layoffs starting
- State tax revenue down 9%

"It wouldn't surprise me to see a lot more capacity drawbacks in Vegas over the next year," said Darryl Jenkins, former director of the George Washington University Aviation Institute. "This isn't an economic cycle. This is a cost increase. It is the worst one any of us have ever seen."

Though Las Vegas was able to thrive in previous economic downturns, I believe this one is very different and our non-diversified gaming economy, which is completely reliant on the discretionary spending of vacationers, will get hammered this time around.

The Las Vegas Economic Downturn Has Started

Economic Troubles Affect the Vegas Strip

Regards

Randy

Bailing out in flood of debt

Regardless of what the mainstream shills are saying, the credit crisis is far from over and a myriad of future economic troubles continue to brew on the horizon.

Home sales (and prices) are still falling, foreclosures are increasing, the Fed remains the sole buyer of toxic waste/securitized garbage, credit remains tight, the economy is shedding jobs, gas and food prices are rising, state tax revenues falling, and the consumer -- who is already starting to pull back on discretionary spending, is barely staying alive by charging daily necessities on credit cards, but this will soon change...

Up to around 12 months ago, millions were able to use the paper equity from rising home values to pay off old credit card/auto debt, but falling home values (in many cases) has now turned that once fat equity cushion into an upside-down household liability. Overall household debt levels are now higher (due to the refinance or HELOC), and the recent consumer inflation wave has now driven our payday-to-payday consumers back to the credit cards -- just to put food on the table and gas in the car.

With credit card delinquencies at a 16 year high, Oppenheimer analyst Meredith Whitney is warning that we should expect to see banks strip away 45 percent of the card credit now available — about $2 trillion, by 2010.



Bailing out in flood of debt

Credit card companies and banks are worried that people are drowning in debt and will fall behind on payments. With home values declining and banks wary of handing out loans, outlets for escaping overwhelming debt are limited.

Consumers are finding themselves caught. Card firms are getting tougher, sometimes canceling unused cards or raising rates seemingly for no reason. And 30 percent of banks said in a recent Federal Reserve survey that they had tightened standards on consumer loans.

People who depend on loans and credit cards are likely to feel increasingly strapped in the future. Oppenheimer & Co. analyst Meredith Whitney has estimated that by 2010, credit card issuers will be so pressured by financial concerns and regulation that they will strip away 45 percent of the credit now available—about $2 trillion.

Already, many credit card users are running into trouble. If they miss payments or are late even a few days, interest rates often go up for that card—and others. Some are running up balances without realizing that they are inadvertently damaging their credit scores and making it more difficult to get the best rates on a car or mortgage loan.

"The rules have changed," said Gerri Detweiler, author of the "Ultimate Credit Handbook" and analyst for Credit.com.

And delinquencies on consumer credit are rising. According to the American Bankers Association the level of delinquencies—or people behind on payments—for certain loans recently was the highest in almost 16 years.

Closing thoughts:

With increasing job losses, a higher cost of living and far less available credit, how will J6P and his family survive?

Our next Democrat President will be in office by then (McCain can't win it for the Republicrats), so expect to see far more monetary printing and taxpayer funded social programs instituted to help them out.


Regards

Randy

UPDATED: US Economic Outlook 2008 -2011+ Briefing

Recently, as part of a broad based financial education class for younger folks (in their 20's-30's), I was asked to provide an economic outlook assessment/briefing to help these young adults gain a better understanding of the very complex problems the US economy is dealing with -- both current and future.

Other people will provide generic information w/regard to: balancing a checkbook, living within your means, using credit wisely, investment options, compounding interest, etc... My main objective is: try to make a very complex issue (economic problems/future forecasting) easy to follow, so that these young people can make wiser decisions based upon the knowledge they have gained.

With that said, I have yet to give the actual briefing (it's scheduled for early June), so I thought I'd take advantage of the available time and ask some of you smart folks to review and provide feedback w/regard to content, complexities, general flow/digestibility, accuracy, missing content, etc...

Please remember -- this briefing was tailored for folks who know little about the history of money, the broader economy, inflation or the many issues in play. Additionally, I plan to expound upon many of the points made in the briefing (when presenting it).

Would really appreciate your comments/feedback.

NOTE: briefing updated based on reader feedback and 207 reads today -- very much appreciated!

The following topic's were added/corrected:
- 20% annual growth = 4 year doubling of money supply
- Short history on Federal Reserve
- US Dollar as World's Reserve Currency
- Oil/OPEC issues (imbedded w/Dollar and Current/future outlook)

US Economic Outlook Briefing (Use full-screen mode for best results)


Thanks in advance!

Randy

Las Vegas Economic Downturn Increasing "High-line" Auto Repos

Back in the day of cheap credit, rising asset values and booming real estate markets, many wanted to "Live the Las Vegas Dream" so they charged top dollar for flashy new and expensive toys -- to show others how smart/successful they were...

Well, times are beginning to change and these "dreams" are turning into nightmares for thousands.

The recovery agent & debt collection business however is thriving from these personal nightmares.

Henri Leleu from Automobile Recovery Bureau (ARB) of Las Vegas say's business is booming.

"It seems like no one is really exempt from this cycle," says Leleu.

"We're pulling cars from mortgage bankers, real-estate firms," Leleu says. "We're talking about upper-echelon people. It's like nobody seems to have that savings or extra borrowing ability to get them over the hump."

From November 2006 to March 2007, ARB was averaging a recovery of 43 high-line cars a month. For the same period a year later, ARB averaged 55 high-line cars a month. These figures include brand names such as Mercedes, Porsche and Bentley.

Leleu says that a year ago, approximately 75% of the cars recovered were C- and E-class Mercedes Benz, carrying sticker prices of $35,000 to $80,000. A year later, the numbers are up by 28% or so, but the true picture here is that now 75% of the high-line cars ARB is recovering are valued in the range of $100,000 to $500,000.

Leleu's says that since October-November last year, ARB Las Vegas has gone from handling 18 to 20 accounts daily to 40 to 45 accounts. The amount of items for each account varies; it could be one car or two street sweepers or several pieces of construction equipment.

As for cars, which are still the most frequently recovered item, Leleu says his company is seizing as many as 160 a month, up from 100 a month last year. He has two agents earning as much as $2,000 a week, or between $65 and $100 per car. ARB Las Vegas charges creditors an average of $300 and $325 for a repossession and an additional $125 to $150 for the vehicle's keys.

That increase in volume isn't exclusive to Leleu's region, either. He says he has met with other recovery agents from across the country, and they've reported the same -- from Oklahoma to Virginia, Colorado to Florida.


Closing Thoughts:

Just think about it for a moment: This significant repo increase is taking place while we enjoy a very low (official) 5% unemployment rate in Nevada. Can you imagine what the repo business will be like when the hotel/gaming/state, etc layoff's really pick up steam (from declining tourism/gaming revenue/taxable sales base)?

The Las Vegas Economic Downturn Has Started

Ok... Move along now, nothing to see... We have no recession here...

Regards

Randy

Economic Troubles Affect the Vegas Strip

This non-economist writer has been forecasting the looming Las Vegas economic downturn since early 2006: Las Vegas—A House of Cards Bound to fall -- if you read the comments/feedback section to that post, you'll realize that some felt I belonged in a loony bin...

Quote 1:

"You're certainty about the fragility of Vegas in the face of a national economic downturn belies a level of profound ignorance to it's past. Stated in terms more suited to you, betting against Vegas is a sucker bet. "

Quote 2:

"Randy, the level of certainty you work yourself into regarding things you know absolutely nothing about is fun to watch, in the same way one watches "Jack Ass". Whether or not that is at cross purposes to your own best interest will be for you to decide."

Ouch! Yes, pretty harsh indeed... But I was un-fazed, because I knew this national economic downturn would be bigger than any seen in many decades, and that the final outcome would be very difficult for our non-diversified Las Vegas economy...

Well, it now looks as if I may be vindicated, as the tide is beginning to turn...

Take my recent (April 08) piece which listed some downturning indicators; illustrating that all is not well in Las Vegas: The Las Vegas Economic Downturn Has Started


And just today the the New York Times released an article that backs me up: Economic Troubles Affect the Vegas Strip

For decades, this gambling center seemed nearly immune to the economic swings of the rest of the country. But these days, the city built on excess is seeing a troubling sign: moderation.

Gambling revenue and hotel occupancy are down. Resorts are slashing room rates and offering coupons or free nights. Casino operators are firing hundreds of workers, and their stock prices have plummeted since October. Credit is drying up for hotel and condominium projects planned before the slowdown arrived.

Even the people still coming to Las Vegas are spending less. Julia Lee, 27, of Los Angeles said she normally brings $10,000 on her trips here to play blackjack. As Ms. Lee picked up show tickets the other night, she said she had brought less than half that on this trip. “My parents are in real estate, and we’re worried,” she said.

So are this city’s hoteliers, retailers, wedding chapel operators and anyone else who depends on the extravagance of gamblers and tourists. The spending declines are relatively modest, a few percentage points here and there. But Las Vegas has a huge inventory of new casinos and hotels due for completion in the next few years, and a long national recession could send the city reeling.

The Las Vegas outlook would be far worse if not for foreign visitors. They are taking advantage of the low dollar to savor the fare of celebrity chefs like Alex Stratta and to snap up goods that might cost twice as much in Europe.

To manage the slowdown, Las Vegas is revving up an overseas marketing campaign, and in the United States, it is pitching spontaneous Vegas escapes. “Do it without thinking!” says one television spot.

But representing only 13 percent of visitors, foreigners can take up only so much slack. Deutsche Bank recently started foreclosure on a $760 million construction loan for the Cosmopolitan Resort and Casino, a partly built project in the heart of the Las Vegas Strip.

Crown Las Vegas, a bullet-shaped hotel and casino resort that was supposed to become the tallest building in the city, was scrapped a few weeks ago for lack of financing.

One of the most prominent Las Vegas casino operators, Tropicana Entertainment, said Monday it would seek bankruptcy protection. The company, beset by financial difficulties, made cutbacks at a casino in Atlantic City that prompted New Jersey regulators to strip it of its license there; that set off a cascade of fresh financial problems.

Other multibillion-dollar Las Vegas projects are facing delays or have been put up for sale because of tightening credit and changing Wall Street perceptions about the city. The city’s resort properties already have 130,000 rooms, and Wall Street — which financed much of the recent boom — is worried that Las Vegas cannot absorb the 40,000 more that are on the drawing board or under construction.

“In this market, it is not good business to be confident,” said Jan L. Jones, a senior vice president at Harrah’s Entertainment and a former Las Vegas mayor. “I’ve never seen an economy like this nationally. Nobody knows how deep what nobody wants to call a recession will go.”

Historically, Las Vegas has been resistant to recessions, entering them later and exiting them sooner than the country at large. Gamblers, particularly high rollers, tend to play no matter which way the economic winds are blowing.

But executives here worry this recession could be different from the last two — in 1990-1 and 2001 — when consumer spending was propped up by easy credit. Now credit is drying up. And high gas and food prices, declining home values and rising unemployment are keeping many Americans closer to home.

More important, over the last two decades Las Vegas has shifted from a destination dominated by gambling to one with more appeal to middle-class shoppers, diners, golfers and others who can afford brief splurges. Whereas gambling represented 58 percent of revenue for Las Vegas Strip resorts in 1990, it represented only 41 percent of revenue in 2007, according to a Deutsche Bank report.

As gambling was legalized in more parts of the country in recent years, Las Vegas was forced to expand its own offerings to keep growing. It worked, but it made the city more susceptible to recessionary declines in disposable income.

“Las Vegas is now as vulnerable as other communities,” said J. Terrence Lanni, chairman of the board of MGM Mirage.

Hotel occupancy was down for January and February, the most recent figures, by 1.5 percent, despite average daily room rates 3.8 percent below the year before. Gambling revenue in the Las Vegas metropolitan area for the same period was down about 4 percent.

“It’s accelerating to the downside,” said Bill Lerner, a senior gambling analyst at Deutsche Bank who lives in Las Vegas. “Las Vegas’s economy is more reflective of the general economy than ever.”

Las Vegas visitors said in recent interviews that they were spending less than in the past.

Rita Keene, a retired insurance risk manager from Collinsville, Ill., said she has been coming to Las Vegas several times a year since 1978 and had never set gambling limits. This year she is betting no more than $300 a day at the slot machines, and she is not going to shows.

“We have investments, and you know what the stock market has been doing,” she said while putting quarters in a slot machine at the Orleans casino. “My husband and I have even talked about this maybe being our last time.”


Closing:

Allow me to repeat my 2006 closing post (from: Las Vegas -- A House of Cards) below:

"Once the LV layoffs begin, more homes will go into foreclosure, as people won’t be able to make their mortgage payments. Then businesses outside of the casino industry (local restaurants, retail, home improvements, beauty, health care, etc) will also begin to feel the pain. Eventually, a chain reaction of dominoes will begin to fall, and ultimately the number of outbound U-hauls will vastly exceed those inbound..."

Well, Nevada is already leading the nation in both foreclosures and price declines ( Nevada Tops in Foreclosures AND Price Declines! ), so as tourism continues to fall and the layoffs increase, I expect we'll see a far worse economy down the road...

Bottom Line:

The Las Vegas downturn has just started and we're merely seeing the opening salvo today.

Better reserve that U-haul now!!!

Regards

Randy

News of Interest today

Sallie Mae affirms outlook, warns of "train wreck"

WASHINGTON (Reuters) - Sallie Mae (SLM.N), the largest U.S. student loan company, on Thursday affirmed its 2008 profit forecast, but warned of a "train wreck" in the $85 billion education financing market without urgent government intervention

Chief Executive Al Lord told analysts on a conference call: "We've been predicting something of a train wreck" in mid-2008 without prompt changes in a market hit by fallout from the subprime mortgage crisis and cuts last year in federal subsidies to student lenders.

Legislation pending in Congress would let the Department of Education buy federally guaranteed student loans from lenders unable to sell them on the secondary market, where investors have retreated from securitized debt.

The bill would also let the department funnel capital to colleges through state guaranty agencies and call on federal financial institutions, including the Federal Financing Bank, to pump liquidity into the student loan market.

Sallie was being flooded with loan applications from students, reflecting the exit of dozens of other lenders from the business.

He said loan demand at Sallie was running at $3 billion a month, while the company has only been able to access funding of about $1 billion a month -- at record-setting costs

Dollar under pressure after Bank of America misses

The dollar was weaker against most major counterparts Monday, after Bank of America Corp.'s earnings shortfall reminded investors that the U.S. financial sector is not out of the woods yet.

Bank of America Corp.'s first-quarter profit fell 77% as credit-loss provisions jumped $4.78 billion, driven by weakness in home-equity loans as well as credit extended to small businesses and home builders.

Comments from European Central Bank Governing Council member Axel Weber also gave euro sentiment a lift. Weber reportedly said inflation is likely to remain elevated and suggested the ECB might have to hike rates.

The British pound sterling was under pressure itself, after the Bank of England announced details of a plan to let commercial banks use mortgage-backed securities as collateral for loans in an effort to thaw frozen credit markets.

Meanwhile, another house price index showed further weakness in the U.K. housing market. Rightmove said annual house price inflation, without seasonal adjustments, slowed to 1.3% in April from 5%, the slowest pace since July 2005.

Crude Oil Trades Near Record After Attackers Cut Nigeria Supply

April 22 (Bloomberg) -- Crude oil traded near a record above $117 a barrel in New York after attacks cut Nigerian output and the dollar dropped against the euro.

Royal Dutch Shell Plc said yesterday 169,000 barrels of oil a day was suspended because of attacks last week in Nigeria, Africa's largest oil producer. OPEC should help replenish oil inventories because prices are ``too high,'' International Energy Agency Executive Director Nobuo Tanaka said yesterday.

``We are clearly headed over $120 a barrel and we are targeting $125,'' said John Kilduff, vice president of risk management at MF Global Ltd. in New York. ``The last thing we need is another supply disruption. The outage certainly adds to the bullish sentiment.''

``This is a wild bull market,'' said Phil Flynn, a senior trader at Alaron Trading Corp. in Chicago. ``It's getting harder and harder to stand in the way of this. As long as the dollar is weak investors are going to buy oil as a hedge.''

The dollar fell to within a cent of a record low against the euro after European Central Bank officials reiterated concern inflation is accelerating, increasing chances interest rates will stay at a six-year high.

The dollar traded at $1.5909 per euro at 6:05 a.m. in Tokyo, after falling 0.6 percent yesterday. It touched $1.5983 on April 17, the lowest level since the European currency's 1999 debut

``If the dollar continues its slide, I can see prices go up,'' Iranian Oil Minister Gholamhossein Nozari told reporters yesterday in Rome. ``OPEC is supplying enough in the market. There are other factors keeping the oil price high.''

As Australia dries, a global shortage of rice

Six long years of drought have taken a toll, reducing Australia's rice crop by 98 percent

The collapse of Australia's rice production is one of several factors contributing to a doubling of rice prices in the last three months — increases that have led the world's largest exporters to restrict exports severely, spurred panicked hoarding in Hong Kong and the Philippines, and set off violent protests in countries including Cameroon, Egypt, Ethiopia, Haiti, Indonesia, Italy, Ivory Coast, Mauritania, the Philippines, Thailand, Uzbekistan and Yemen.

Workers Get Fewer Hours, Deepening the Downturn

Not long ago, overtime was a regular feature at the Ludowici Roof Tile factory in eastern Ohio. Not anymore. With orders scarce and crates of unsold tiles piling up across the yard, the company has slowed production and cut working hours, sowing worry and thrift among its workers.

“We don’t just hop in the car and go shopping or get something to eat,” said Kim Baker, whose take-home pay at the plant has recently dropped to $450 a week, from more than $600. “You’ve got to watch everything. If we go to town now, it’s for a reason.”

Throughout the country, businesses grappling with declining fortunes are cutting hours for those on their payrolls. Self-employed people are suffering a drop in demand for their services, like music lessons, catering and management consulting. Growing numbers of people are settling for part-time work out of a failure to secure a full-time position.

The gradual erosion of the paycheck has become a stealth force driving the American economic downturn. Most of the attention has focused on the loss of jobs and the risk of layoffs. But the less-noticeable shrinking of hours and pay for millions of workers around the country appears to be a bigger contributor to the decline, which has already spread from housing and finance to other important areas of the economy.

While official unemployment has risen only modestly, to 5.1 percent, the reduction of wages and working hours for those still employed has become a primary cause of distress, pushing many more Americans into a downward spiral, economists say.

Moreover, this slippage is a critical indicator that the nation may well be on the verge of a recession, if not already in one.

Last month, the hours worked by those on American payrolls dropped, compared with six months earlier, according to an index maintained by the Labor Department. The last time the index moved into negative territory was February 2001, when the economy was on the doorstep of recession. A similar slide emerged in August 1990, one month into what proved an even more severe downturn.

From March 2007 to March of this year, the average workweek reported in the private sector slipped slightly to 33.8 hours, from 33.9 hours, while overtime for manufacturing workers fell by a larger margin.

At the end of last month, more than 4.9 million people were working part time either because they could not find full-time jobs or because their companies had cut hours in the face of slack business, according to a Labor Department survey. That represented an increase of 400,000 since November.

And on Wednesday, the government reported that average earnings slipped in March after accounting for the rising costs of food and fuel — the sixth consecutive month that pay failed to keep pace with inflation.

As people bring home paychecks that do not go as far, they are forced to economize, eliminating demand for goods and services that once captured their dollars, spreading pain to providers like auto dealers and lawn care providers. They, too, must trim their outlays on pay, shrinking working hours more and furthering the slowdown

“It means spending slows going forward,” said Robert Barbera, chief economist at the trading and research firm ITG.

Paychecks are diminishing just as millions of Americans are finding their access to credit constricted as well. Borrowing against the value of real estate — a crucial artery of household finance in recent years — has been pared back as home prices have plummeted and as banks have tightened lending standards in the aftermath of the collapse of the housing bubble.

“At this point, those avenues are blocked,” said Jared Bernstein, senior economist at the labor-oriented Economic Policy Institute in Washington. “Consumption going forward is going to be in large part a good old-fashioned function of paychecks and incomes.”

Even before the rollback in working hours, pay was barely keeping up with the rising costs of gas and food. From February to September of last year, the average hourly earnings for workers in the private sector was still growing at a slightly faster clip than the pace of inflation, according to the Labor Department. But from November through March, as employers began to scale back in a variety of ways, wage growth fell below the pace of inflation, meaning that paychecks were effectively shrinking.

Now, work opportunities are themselves declining, as the downturn snuffs out business.

In the suburbs of Denver, Max Garcia was netting as much as $2,000 a month last year as a self-employed computer repairman, he said. As recently as November, he was still receiving three and four calls for help a week. But since early February, calls have dropped to one a week or fewer, he said.

“Everybody’s getting tighter,” he said — himself included. With his income cut in half, Mr. Garcia, a single father, no longer takes his two young daughters out for fast food, he said. For clothing, he now goes to secondhand stores instead of the mall. For amusement, he visits the park instead of the museum.

“We spend more time at home,” Mr. Garcia said. “We don’t drive anywhere we don’t have to.”
In Los Angeles, William Righi, a musician, bemoans the sudden difficulty of getting jazz and blues gigs at restaurants and parties. He gives fewer private singing lessons to high school students.
“Their parents don’t want to pay,” Mr. Righi sighed. “They don’t have the money to burn. In the last month, it’s really dropped off.”

With his income down, Mr. Righi has been putting off buying new musical instruments and sheet music. He has curtailed his traveling.

At a factory in Lancaster, Pa., Armstrong World Industries, which makes flooring products, cut production of vinyl sheets for two weeks in March in reaction to softening demand for its goods, the company said.

Management is now seeking to slow production further, said Joe Rumberger, president of the local branch of the United Steelworkers, which represents workers there.

Some of those sent home received temporary unemployment benefits, he said, securing government checks of about $520 a week in lieu of paychecks that reached $900.
“It hurts,” he said. “If you’re not working, unemployment checks only go so far.”

At many companies, management is hanging on to as many workers as it can, cutting hours to try to limit layoffs, while hoping that business improves.

As the construction business deteriorated rapidly last fall, so did demand for the ceramic tiles produced in New Lexington, Ohio, at the Ludowici factory. In November, the company began drastically cutting overtime for many workers. The following month it laid off several people.

Last month, the factory resorted to layoffs, cutting the hourly work force to 81, from 93. It idled the kiln on weekends.

But even as sales fell, the company kept producing, building up stocks of tiles that it assumed it could sell eventually.

“We thought that would be a smart way to do it in order to keep people working,” said Derek Thomas, the plant manager. “The philosophy around here is we remain hopeful that things are going to pick up.”

But if fresh orders do not arrive soon, Mr. Thomas acknowledged that his hopes were likely to be dashed. In that case, he said, the company was facing further “head count reductions.”

With his overtime pay gone and faced with the ugly potential of a layoff from the job he has known for 14 years, Mr. Baker, the plant worker, is streamlining his spending every way he can.

This time of year, he would normally be planning a trip through Ohio in his camper. But he does not expect to take to the road anytime soon. “Not with the money flowing the way it is,” he said, “and the price of gas.”

To John E. Silvia, chief economist for Wachovia, the banking company based in Charlotte, N.C., Mr. Baker and his boss are representative of a national economy that is hunkered down and awaiting better while worrying about worse.

“You’ve got a lot of people sitting around now,” he said, “waiting and hoping for orders.”

Las Vegas—A House of Cards Bound to fall

Las Vegas is a booming city with very low unemployment figures, and a robust, thriving economy. Over 6,000 new families move here every month, taking advantage of the abundant number of service sector jobs, and the city welcomes them with open arms. Regardless of where you look, construction abounds, as the city tries to keep up with this explosive growth -- building the infrastructure (schools, roads, housing, new casinos, high-rise condo projects, etc) to support this massive expansion.

The situation hasn’t changed much throughout the entire 11 years that I’ve lived here--it has been constant growth. Las Vegas has absolutely flourished in a vibrant U.S. economy, and has expanded to more than twice its size.

With that said, this thriving Las Vegas economy is 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. Gaming is big money and people have been more than happy to live life to the fullest and part with their cash in a strong U.S. economy. Their spending has kept thousands upon thousands of people gainfully employed in this city.

Again, the last 10+ years have seen an unprecedented economic boon, but what will happen when the U.S. economy finally starts to contract, when millions of U.S. homes start to lose value, when consumers interest rates rise and payments double on credit cards, when gas & travel become prohibitively more expensive, when the American consumer is finally tapped out and no longer has the discretionary money to gamble away in Vegas?

I'll tell you the answer: Currently, Las Vegas hotel/casino occupancy rates are running ~ 90%. Each one of these highly profitable businesses is staffed with thousands of employees (desk clerks, maids, concierges, cocktail waitresses, maintenance workers, moneychangers, card dealers, security, managers, etc.), who depend on the jobs to pay their mortgages, rents, car payments, etc. When tourism & discretionary spending finally start to decline, gaming revenues will drop, hotel occupancy rates will fall, and thousands of layoffs will follow.

Those 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...

Once the LV layoffs begin, more homes will go into foreclosure, as people won’t be able to make their mortgage payments. Then businesses outside of the casino industry (local restaurants, retail, home improvements, beauty, health care, etc) will also begin to feel the pain. Eventually, a chain reaction of dominoes will begin to fall, and ultimately the number of outbound U-hauls will vastly exceed those inbound...