Las Vegas economic recovery: ‘Are we better? Yes. Are we good? No’

Courtesy Photo

Construction continues on the SLS, the former Sahara, on June 21, 2013.

Work Continues on SLS Resort

Workers demolish the old porte cochere at the SLS Las Vegas resort, formerly the Sahara, Wednesday, March 13, 2013. The renovated resort is expected to open in the fall of 2014. Launch slideshow »

When the Great Recession battered the nation, the bottom fell out in Las Vegas. One of every six jobs vanished. Home prices dropped as much as 50 percent. Construction projects stopped in place and tourist spending on the Las Vegas Strip, the economic driver of this city, went into an alarming slide.

These days, jobs are back, the housing market is bustling and people are moving back. The number of visitors hit a record last year. For anyone seeking evidence that the nation has survived this recession, look no farther than the sidewalks of Las Vegas Boulevard, where people were shoulder to shoulder the other day even as temperatures surged past 110 degrees.

But the recovery in Las Vegas — much like the one lifting the nation — is shaping up as fragile and tentative, stirring concern among economists and many of the region’s biggest boosters. And it is signaling what appears to be a fundamental reordering of the economy in this closely watched part of the country.

More than 39.7 million visitors came here in 2012, a record. But those visitors spent notably less money per trip than during the last upturn — $1,021 per visit last year, compared with $1,318 per trip spent by the 39.2 million visitors in 2007, according to the Las Vegas Convention and Visitors Authority — a sobering asterisk that has led many analysts to conclude that this high-rolling city is entering a less prosperous era.

The total revenue from gambling and entertainment other than gambling was $15.3 billion in 2012, $500 million less than was spent in 2007.

“The Strip is absolutely packed; downtown is packed,” said David Schwartz, the director of the Center for Gaming Research at UNLV. “People are here. But they aren’t spending as much as they used to.”

A shift in the structure of the economy that began about a decade ago appears to have accelerated. Gambling is no longer king. A new influx of tourists, younger and less devoted to gambling, are likelier to open their wallets for extravagantly priced nightclubs and day clubs, which have joined concerts and musical shows, high-end restaurants, luxury shopping and some of the more exotic types of entertainment this city is renowned for offering.

From the Mandarin Oriental hotel’s 23rd-floor bar one recent evening, with its desert views and $18 specialty cocktails, the new building-size digital billboards that loom over the Strip flashed advertisements not for slots, but for Tiesto, the DJ playing at Hakkasan, a 75,000-square-foot nightclub where reserving a table for the night can cost $10,000 and more.

“Gaming went down more than total visitor spending, by a greater percentage,” said Stephen Brown, the director of the Center for Business and Economic Research at UNLV. “The visitors who have come back are here for clubs and shopping. They’re buying swimsuits to go to the day clubs and evening clothes to go to the nightclubs. That’s the big growth.”

“I think what’s going on here is we’re seeing a shift away from Las Vegas as the only gaming destination in the United States to being one of many gaming destinations,” Brown said. “But it is holding up as a tourist destination.”

In 1984, the city’s sprawling casinos accounted for 59 percent of all the money collected on the Strip. Last year, gambling made up just 36 percent of the revenue. Clark County, which includes Las Vegas, took in $9.4 billion in gambling revenue last year, up from the year before but still far short of the $10.8 billion during the peak year of 2007, according to statistics from the Center for Gaming Research.

Beyond tourism, the baseline statistics of economic growth give reasons for both hope and concern, analysts said. Home prices jumped by 15.3 percent in the Las Vegas metropolitan region this year, according to the Case-Shiller home price index, but still remain 56 percent below their peak in 2007. Jobs grew last year at a rate of 2.6 percent, compared with 1.7 nationally, but that is short of the 3.7 percent average growth rate posted during the boom years of 2001 through 2007.

And there are potential problems ahead. Many analysts here argue that the super-hot housing market amounts, yet again, to a bubble, and are girding for another collapse in prices. Some of the biggest casino owners, including MGM Resorts International and Caesars Entertainment, are saddled with debt.

Las Vegas has a long history of reinvigorating itself, of finding new ways to bring in new consumers and to entice them to part with large sums of money. Still, the latest lift provided by the exploding nightclub business is troubling to local officials who view it as little more than a flash in the pan and worry that the city is reaping the temporary benefits of, as one worried Las Vegas executive put it, a “club bubble.”

“I don’t know where these young people get the money for that — it’s just amazing to me,” said Clark County Commissioner Chris Giunchigliani. “Clubbing is always going to be around, but at some point, it’s like how we overbuilt hotel rooms. They’re going to look at the market and start to scale back.”

Considering the trauma this region has endured, it is hard to minimize the psychic lift of the turnaround. For a long while, a drive around Clark County meant a blur of for-sale signs, tracts of half-built housing projects and shuttered businesses. Las Vegas became the very symbol of what went wrong with the economy, starting with the collapse of housing and construction.

But the cranes and workers are back. Construction was bustling on a recent scorcher of a day at the old Sahara, where the iconic property is being turned into SLS Las Vegas, a high-end resort, on what is now the relatively barren north end of the Strip. Billboards promise new nightclubs, restaurants, luxury shopping and 1,600 rooms.

Unemployment in Las Vegas was 9.6 percent in April, down from 14.6 percent two years ago. In 2006, it went as low as 3.8 percent.

“Overall, if you look at any of the statistics, the economy has turned,” said Jeremy Aguero, an economic analyst based in Las Vegas. “We are now in the top six states in terms of population immigration. We are at the top of the pack in terms of new job formation.”

Yet even as Aguero spoke hopefully about the changes the statistics are showing, he was careful, he said, not to suggest that there had been the kind of turnaround many people were hoping for. “Are we better?” he continued. “Yes. Are we good? No.”

Kevin Bagger, director of marketing for the Las Vegas Convention and Visitors Authority, said his agency’s latest studies pinpoint the reason for concern. Before the recession, the average consumer coming to Las Vegas put aside $650 to spend on gambling. Now, he said, it is closer to $480.

“People still are cautious with their spending,” he said. “That said, we are thrilled to see people here.”

Brown said he did not expect to see a return to the levels of prosperity of just a few years ago. “The kind of economy that Las Vegas saw in 2006 and 2007?” he said. “We probably won’t see that again.”

Tags: Business