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Jun. 26, 2008
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SOUTHERN NEVADA OUTLOOK: Economist says region in recession

UNLV director casts definition aside, points to local numbers

By HUBBLE SMITH
REVIEW-JOURNAL

Keith Schwer, director of the Center for Business and Economic Research at UNLV, breaks down statistics during the Midyear Economic Outlook on Wednesday at World Market Center.
Photo by Martin S. Fuentes/Review-Journal

Graphic by Mike Johnson.

Throwing his usual cautious optimism to the wind, UNLV economist Keith Schwer boldly declared Wednesday that Southern Nevada's economy has indeed entered a recession.

For months, Schwer, director of the Center for Business and Economic Research at University of Nevada, Las Vegas, had stubbornly stood by the technical definition of a recession, which is two consecutive quarters of negative growth as measured by the gross domestic product.

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There's no denying now that soaring oil prices, tight credit and the continued downturn in housing have sent the Las Vegas economy into the tank.

"This is the story line. Yes, there is a recession," Schwer told about 250 business executives at his Midyear Economic Outlook, held on the 16th floor of the World Market Center. "Three things come together to account for our outlook of a recession -- oil, credit and housing."

The numbers would bear him out.

The Southern Nevada Index of Leading Economic Indicators, compiled by the UNLV research center, dropped in May for the third consecutive month, to 130.80. All of the series used in the index fell below levels from the same month a year ago.

Schwer showed graphs of the local economic index tracking generally along the same lines as the U.S. index, contradicting the local consensus that Las Vegas is somewhat insulated from the national economy.

"No regional economy is recession-proof. We just had a different set of economic parameters. We're not immune to recession," he said.

Schwer seemed most concerned about the price of crude oil and the effects it will have on the Las Vegas economic engine: gaming and hospitality.

Gaming revenue, visitor volume and McCarran International Airport passengers have all shown declining numbers.

"If you had to pick one indicator, follow gaming revenue and it's slowing down," Schwer said.

Some airlines have remained profitable because of their ability to hedge on fuel prices or purchase the fuel in advance. They're flying on $50 a barrel, but that's going to end, he said.

Airlines have reduced capacity as oil prices have risen, taking down 18 percent of their seats when crude oil reached $130 a barrel. Capacity would be reduced 28 percent at $170 a barrel and 35 percent at $200 a barrel, Schwer calculated.

"If you look at $170 and $180 a barrel, we have a disaster on our hands," he said. "If it costs almost $1,000 to fly from Detroit to Las Vegas, how many people will say, 'I'll pass this by.' "

As gasoline prices rise, people adjust, he said. They keep their Hummer in the garage.

"I must apologize. I drive an old (Chevrolet) Suburban," Schwer said. "If there are any bankers in the room, I may need a loan to fill up my tank. Maybe a second loan."

Nevada's unemployment rate, which is now above the national average at 5.9 percent, will continue to rise and interest rates will stay low, the economist said.

Population growth has slowed because of fewer job opportunities and less affordable housing in Las Vegas, Schwer said. It will remain positive, probably under 3 percent for the next year.

Schwer forecasts a 3.6 percent decline in gaming revenue for 2008, a 4.3 percent drop in visitor volume and a 41.9 percent drop in new housing permits.

"Housing is correcting itself," he said. "Credit remains a problem and I would argue that oil is the trump card that will really give us trouble. Some analysts say prices cannot be sustained, that they will come back down and that bodes well for us."

In the meantime, Schwer said, he's giving students in his economic classes a success formula from J. Paul Getty: "Get up early, work hard, strike oil."

Contact reporter Hubble Smith at hsmith@reviewjournal.com or 702-383-0491.

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Please enter your name Name: Please enter your email Email: Please enter a comment COMMENTS : (word count limit is 300) You have reached the maximum number of words allowed Current Word Count: rb wrote on July 02, 2008 09:09 PM: We have been in a recession for over a year now. Thanks to GW and the FED printing TOO MANY dollars everything we consume now(imported of course) costs more. As soon as we STOP the "WAR" in Iraq and stop printing dollars this stagflation will go away. But thats not part of the plan now is it? www.zeitgeistmovie.com Positive Pete wrote on July 02, 2008 07:16 PM: You want positive? It's all in your perspective. You can buy a house for 25% less than last year. Housing has become more affordable for everyone, for current renters that's awesome! You can buy stocks for 20% less than last year. If you're currently buying stocks, that's pretty good too. Unemployment is up, so maybe customer service will improve? Schwer is on the money with his analysis, as usual. Some folks just can't handle the truth. If you want sunshine blown up your skirt, then just read the articles that quote the usual real estate cheerleaders that deny a housing bubble ever existed (e.g. GLVAR, Larry Murphy, Steve Bottfeld). Seriously, dig up some RJ articles from 2006 and you'll never believe a word they say again. Ronald McCormick wrote on June 28, 2008 10:16 AM: The professor says population growth has slowed due to "less affordable housing" how can this be when housing prices have declined by as much as 40%. No Vaseline wrote on June 27, 2008 12:11 PM: Snackler, what I stated was what we needed in this country, what you stated is exactly why we have the problems we have in this country. Free Nevada wrote on June 27, 2008 12:50 AM: You should see the 10 second TV spots that Agua Caliente Casino/Spa/Resort is running on local TV stations here in LA/Orange County. They feature the charismatic 53 year old John O'Hurley in front of a chalkboard showing a map with two freeways joined at LA --the long long freeway says I-15 and ends in the word Las Vegas. The short freeway ends a color drawing of a resort labeled Agua Caliente. John then uses a school teacher's pointer to highlight the difference and an eraser to erase the word Las Vegas just enough to show it's being erased. In other spots he says "Who cares What Happens In Vegas" as he's wearing his signature tuxedo and dipping a gorgeous blond on the dance floor in front of a full Vegasesq ballroom with band, champagne flowing, etc.. (he is featured on the national broadcasts of Dancing With Stars, etc..) No soapbox, just my educated comment that it is GAME OVER unless the electric 280mph Mag-Lev gets under construction (they are very easy to install because they can be elevated easing right of way). It will take a decade of hefty taxes on Vegas casinos, government subsidies and/or international and private investment to pay the huge bill, but we have the cash and need construction to get underway while we workout financing. Maybe Clark County Councilman Rory Reid and his dad, US Senator Harry Reid, can help save the beloved Couty from depression ($5g gas prices in LA/OC!) by taking ownership/leading project. They have nothing to lose by sticking their neck out as Vegas is totally dead with $1000 AIRFAIR from Denver coming and massive megaresorts only an hour or so by car outside of LA/OC finally here, now. snackler wrote on June 26, 2008 09:03 PM: No Vaseline has the right idea for the short run, but long term it will not work. After getting these plants up and running the twinkies that were hired to run the company will get lazy and take the easy way out. Like the average CEO does now. Mr CEO will sell off the machinery and outsource the production to a third world country. Running an efficient top notch company takes a lot of time and effort and most American managers won't put out the effort. It's so much easier to get on the phone and scream at the supplier and let him worry about how the stuff will get produced. In the meantime Mr CEO and his management pals and the Board of Directors vote themselves big compensation packages loaded with perks. I would heartily disagree about China sucking our factories over to their side and stealing our technology. It was our companies that gave it to them. USA companies have built state of the art factories in China and either closed or neglected the ones they have in the USA. You have the right idea No Vaseline, but the corporate leaders will sell us out faster than any politician ever could. Without that manufacturing we're screwed. No Vaseline wrote on June 26, 2008 07:52 PM: Here is a positive thought, rather than giving $600 checks to USA citizens to buy fuel and other stuff shipped here from overseas, lets come up with plans on incenting people in the USA to invest in factories and businesses that will support Americas needs and growth domestically. Im not talking about building new bridges, of which we need. Im talking about automated plastics, metals and other types of production facilities. I travel to China often, its a communist state but the government targets growth and areas for investment. They can do this now for they sucked the worlds manufacturing in and have stolen all of the worlds know how. Now its time for us to leap frog the old technologies they use in manufacturing and rebuild America for the 21st century. No country has ever got rich consuming more than producing. Harris wrote on June 26, 2008 06:52 PM: Larry, you are right we do need positive thinking and truth, but our leaders we have elected to congress do not know of these words in their vocabulary. Greed is the top word in our elected. They wake up in the morning and say Hello GREED and good morn. honey time to get GREED to work.Elect not Re-Elect Larry wrote on June 26, 2008 06:25 PM: These are difficult times and they most certainly will get worse before they get better. Does anyone have any solutions here? Everything we read anymore is negative. I would like to hear something positive for a change. ANTVGRASSHOPPER wrote on June 26, 2008 03:20 PM: THIS GUY IS CAPTAIN OBVIOUS nothing new presented here Read All Comments