Tuesday, December 7, 2010

10 of '10: Are We There Yet?

This week, I'm introducing 10 of '10, aka the ten most memorable Nevada stories covered here in 2010. Haven't we been through a lot this year?

And without a doubt, one of the biggest ongoing stories of 2010 was our brutal recession and whatever signs emerged of potential recovery. It seems the worst is finally over, but that's cold comfort to those here in Nevada who still can't find jobs.

Back in January, there was our first sign of hope when Goldman Sachs turned bullish on MGM Resorts as Vegas visitation numbers started rising again.

So is everything looking up from here? Apparently.

But is all the bad news over yet? Not so fast. Room rates are still hovering under $93 per night, and total spending is still down.

But at the very least, more signs are finally appearing and telling us that the worst is over and recovery is arriving. This is the third month in a row with year-over-year gains in tourist volume, and this is the first time since 2007 that Nevada casino winnings have actually seen year-over-year gains. Also remember that this is for November 2009... Before CityCenter opened!

And now with Wall Street giant Goldman Sachs betting on MGM Mirage's and Las Vegas' overall success, it's no longer looking so "crazy" to invest in Southern Nevada's future.

But still, we've had to deal with the changing dynamics of this town. In March, I wrote about the challenges posed by casinos investing more in emerging markets and less here in Nevada.

It's the law of diminishing marginal returns, plain and simple. As the 1990s Strip construction boom came to a close and the 2000s "luxury megaresort craze" began, Las Vegas began to reach the point of saturation with high-end megaresort casinos. The law of diminishing marginal returns began to take hold as the potential for profit decreased as the number of megaresorts vying for tourist dollars continued to increase.

This is why the Las Vegas of 2010 is a whole new ball game. We're no longer that tiny outlaw outpost in The High Mojave, but rather a maturing resort destination that already attracts over 37 million visitors annually. And while there are still some possibilities to expand that tourist pool, we don't have as much growth potential in gaming these days, like we did in 1950 or 1990. [...]

Now contrast this to newer markets, like Florida and Pennsylvania domestically and Macau globally. Pennsylvania and Macau are nowhere near full saturation yet, and Florida is a potential gold mine with already desirable tourist destinations that haven't yet been tapped by casinos. Now we can see why all the big casino companies are rushing to build abroad as they only agree to minor spruce-ups at their respective Las Vegas home bases.

So what does this mean? No, it's not the end of the world! Las Vegas will go on, albeit now as a more mature gaming destination rather than some place with unrealistic "limitless" growth potential.

And two days later, I wrote the rant I just can't stop using.

[... T]he casinos can no longer be counted upon as a "free ride". We can't just expect new casino construction to prop up demand for construction jobs, which props up demand for new housing, which props up demand for housing construction, which props up the rest of Southern Nevada's economy. We may have lucked out in seeing this model work from 1989 to 2007, but all it really did was hide the weaknesses in this shaky economic model that ended up being exposed when "The Great Recession" hit and all the artificial demand for new casinos, new homes, new whatever fell like a row of dominoes. [...]

Yes, there are signs of hope here. We're no longer seeing the mountain of foreclosures that seemed so mind-numbingly painful a year ago. We're no longer seeing the unemployment rate rocketing up to dangerous new highs, even though it's bad enough that it's still hovering around an already too high 13.8%. We are starting to see a return of economic growth, however so slight and lagging behind the rest of the country it is.

But again, I have to point out that we are lagging behind. We're especially lagging behind metro areas that have better PreK-16 education systems and more stable employment sources. Salt Lake City and Ogden, Utah, both have GMP (gross metro product) growth rates exceeding the national average and unemployment below the national average. Same goes for Denver, Boulder, and Colorado Springs, Colorado. So why is this? All of these areas boast a highly educated workforce employed in stable sectors like high-tech and biotech, and none were as dependent on the housing bubble and artificial "construction for the sake of construction" as Southwest areas, like Las Vegas and Phoenix (which is also lagging behind in economic growth).

So again and again, we come back to this dilemma. As long as our education system is broken and as long as we continue to make ourselves overdependent on the casinos and casino-fueled development, Las Vegas will continue to suffer under this radical boom and bust cycle that lives and dies on discretionary consumer spending. Sorry, but this is not how a major metropolitan area with 2 million residents and a state with over 2.7 million residents can survive!

So it all comes back to this. Will Nevada remember the lessons learned the hard way during The Great Recession? I have a feeling we have no other choice. Gaming revenue likely won't return to pre-recession levels until 2014. And moving forward, there's no more chance of "limitless" "growth for the sake of growth", as there just isn't much room left for The Strip to grow and competition can now be found almost everywhere.

Looking forward to 2011 and beyond, Nevada needs to look to more stable job sectors to find the stable economy we've always been looking for.

1 comment:

  1. I think the most progressive changes that have taken place are the southwest building construction projects. I still can't believe how quickly this state is changing. However, with the current shape of the economy, researching the options is an invaluable first step. McGraw Hill's Southwest Construction site is a great resource for this. They have all the important information you need, including who is available for hire and what they are like, as well as what products and manufacturers are out there. While I do work with them, they have honestly been a great help in all of my projects and have saved me both time and money. I would definitely recommend them.