Quarterly Indicators Southern Nevada Business Confidence Index

<span style="font-family: arial,helvetica,sans-serif; font-size: 12px;">The U.S. economy has seen five quarters of recovery, albeit at a slow pace. Taking an unaccustomed position of trailing the national economy, the Southern Nevada economy may finally be at the beginning of its recovery. For the most recent three months for which data are available, gaming revenue, visitor volume and taxable sales are up over a year earlier. The Center for Business and Economic Research (CBER) Southern Nevada Index of Leading Economic Indicators grew by 0.21 percent in October, marking the second consecutive month of small gain. The gains are so small, however, that a stronger showing is needed to provide evidence that the Southern Nevada economy is on the rise. Contributing to the feeling of economic desperation, the Las Vegas unemployment rate increased from 14.7 percent to 15.0 percent in September and 75-80 percent of the homeowners in Clark County are thought to owe more on their mortgage than the value of their house. Both percentages are among the highest in the nation.<br /> <br /> Reflecting continuing economic stress, the mood at local businesses is somewhat more pessimistic than in our last survey. When asked how they think economic conditions in Nevada will change in the coming quarter, 47.6 percent thought they would worsen, 37.5 percent said they would remain the same, and only 15.1 percent expected improvement. Most respondents were more optimistic about the U.S. economy, with 32.1 percent expecting improved U.S. economic conditions in the coming quarter, 37.0 percent stating that they will remain the same, and 30.9 percent projecting worsening economic conditions.<br /> <br /> The survey results reveal that Southern Nevada businesses remain concerned about sales and profits in the coming quarter. When asked about sales in their own industry, 38.8 percent forecasted a decline in sales, 37.5 percent expected no change, and only 23.8 percent expected an increase. Expectations about profits are very similar, with 43.8 percent projecting a decline in profits, 36.3 percent expecting no change, and 20.0 percent expecting growth.<br /> <br /> In comparison to our last survey, the current survey shows firms growing more hesitant about hiring and capital expenditures. When asked about hiring in their own industry, 39.3 percent of the respondents projected a decrease, 55.7 percent forecasted no change, and only 5.1 percent expected an increase. Similarly, 36.4 percent of the survey participants projected a decrease in capital expenditures, 46.8 percent expected no change, and only 16.9 percent forecasted an increase.<br /> <br /> Multiple Listing Service data and responses to our survey suggest that declines in Clark County housing prices have stabilized. Prices for new homes continue to fall, but the price per square foot has been relatively constant for the past 18 months. Nonetheless, survey participants think it will be some time before Southern Nevada real estate and construction begin to show signs of improvement. More than half (59.3 percent) of those surveyed expect that it will be after the first half of 2012 before Southern Nevada home prices show signs of a meaningful recovery, 17.3 percent project such a recovery in the first half of 2012, and another 22.2 percent project the recovery in the second half of 2011. Only 1.2 percent of the respondents expect a meaningful recovery in home prices in the first half of 2011. For construction, 69.1 percent of the survey participants expect it will be after the first half of 2012 before Southern Nevada sees increases, 17.3 percent forecast increases in the first half of 2012, 12.3 percent project increases in the second half of 2011, and 1.2 percent expect gains in the first half of 2011.<br /> <br /> Southern Nevada businesses still face problems from national financial conditions. Among the financial problems cited, 33.8 percent of the respondents said that falling real estate values was the most important, 27.5 percent pointed to unpredictable business conditions, 20.0 percent identified slowing or lost sales as most important, and 6.3 percent said the most important problem was the inability to obtain credit.<br /> <br /> The respondents are growing increasingly concerned about financial problems. Among the survey participants, 21.3 percent said that problems associated with financial conditions threatened the survival of their business and 38.8 percent said that such problems depressed prospects for the foreseeable future. Only about 40 percent of the respondents said that financial issues created only a temporary setback, required only minor adjustments, or had no effects on their business.<br /> <br /> The survey respondents also expect lingering effects from the nation&rsquo;s financial problems. Nearly half (49.4 percent) thought a long period of slow or no economic growth was the most serious problem. Significant minorities were more concerned about other issues, such as large tax increases (18.5 percent), a more socialized economy (12.3 percent), and increased inflation (8.6 percent).<br /> <br /> Overall, the survey responses suggest pessimism about the short-term prospects for the Southern Nevada economy. These responses suggest the mood may be the darkest before the dawn. Employment and construction remain weak, and the real estate market has a substantial overhang of residential and commercial space. At the same time, however, U.S. disposable income and consumption expenditures generally increased through the first nine months of the year, consumer confidence is improving, and measures of international economic activity are mostly on the upswing. We have also seen some recent gains in Clark County gaming revenue, visitor volume and taxable sales. Because the Las Vegas economy is heavily dependent on tourism, these factors suggest the Southern Nevada economy may be at the beginning of a long-awaited recovery.<br /> <br /> - Stephen P. A. Brown, PhD</span><br />

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