Are we in recovery? That’s the question I keep hearing, but there’s a flaw in the premise. When the house of cards fell in 2007, Southern Nevada was hurt in three distinct segments of its economy, and while they are to some degree connected, each is going through its own recovery cycle.
So, when we wonder about the pace of recovery, we need to think about three different recoveries: The gaming/hospitality recovery, the residential real estate recovery and the commercial real estate recovery.
Before we examine those recoveries, though, we need to also examine the concept of “recovery”. When a minor recession hits, it is followed, eventually, by a minor recovery. A minor recovery leaves an economy looking much as it did before the recession. Think of it as recovering from the flu – you aren’t fundamentally changed by the illness when it’s finally over.
An economy that suffers a major recession, however, is often changed in important ways when that recession transitions into recovery. This makes major recoveries a tricky thing to track, as we’re waiting for the facts and figures to “return to normal”. Unfortunately, there is a new normal, and we might not realize we’ve reached it right away, since it’s unlike anything we’ve ever tracked before. Southern Nevada is now recovering from a major recession, so expect change.
Now, we examine the three recoveries of Southern Nevada. First and foremost is the big dog in Southern Nevada – gaming and hospitality. At its depths, visitor volume was 7.8 percent below its height in 2007, while gaming revenue suffered a 23 percent decline. From these figures, we can say that visitor volume went through a minor recession, while gaming revenue suffered a major recession. By the end of 2012, visitor volume was 1.3 percent higher than in 2007, while gaming revenue was still 15.6 percent down.
I think it’s safe to say that visitor volume is recovering, but gaming (can’t we just call it gambling?) revenue, which has shown growth, remains weaker than we would expect given the visitor volume. This is one of those transitions we need to look out for. New Vegas visitors are spending less money, overall, but are also shifting their spending towards food and entertainment (sure things, one might call them) from gaming. Just the same, with growing taxable sales and visitor volume, it’s a pretty safe bet that the “engine of our economy” is recovering.
Residential construction is the segment that put the “major” in our “major recession”. There are now fewer construction workers employed in Southern Nevada than 20 years ago – pretty much says it all. Fortunately, we are seeing some recovery in this segment, with inventories of new and used housing falling and many developers looking forward to starting new developments in the next couple years. Southern Nevada’s population is again on the rise, after a first in 30+ years dip in 2008. There have also been reports of median home prices rising in Southern Nevada. So – housing is in a slow recovery in Southern Nevada, but definitely heading to a new normal. Demographics are changing – extended families, more apartments for young folks who are burdened with paying for their elder’s retirement (I love hearing about those hover chairs that don’t cost the elderly ONE CENT).
Commercial real estate may not be the third pillar of the local economy, but it is related to residential real estate and it’s obviously important to this office. I can happily say that commercial real estate is recovering, slowly perhaps, but is also heading towards a new normal. Expect much higher than usual vacancy rates for the next decade, as thousands of square feet of old space are ignored and new projects are started. Commercial real estate is still a mess, but it’s getting better!
So, three recoveries are needed, and three recoveries are happening. What we're in the process of discovering is how quickly these recoveries are happening, and what we're recovering to.