The Las Vegas economic boom of the last decade, much like the broader nationwide housing bubble, was fueled by cheap credit, irrational exuberance and a vision of unending parabolic profits far into the future. Leaders and businessmen, blind to any future economic downturn (remember: Las Vegas was recession proof), continued to play the only card game they knew and each new mega gaming facility had to outdo all of the previous. Thus, billions of investor dollars poured into the city - hoping to catch a splash of the never-ending tidal wave of gaming revenue generated profits, and it worked - for a while.
On the flip side: though this narrow-minded, one-way vision was great for those early enough to catch a ride on the gravy train, it prevented the city from developing any "real" economic diversification and the economy grew ever more dependant on increasing 1) the volume of tourism and 2) their discretionary spending.
Back in March of 2006 I wrote:
The (currently) thriving Las Vegas economy is completely dependent on the discretionary spending of vacationers (Airlines, Hotels, Restaurants, Shows, Gambling, Drinking, Strip Clubs, etc), as the city lacks any real or substantial diversification. Gaming is big money and people have been more than happy to live life to the fullest and part with their cash in a strong U.S. economy. This spending has kept thousands upon thousands of Las Vegans gainfully employed.
But what will happen when the U.S. economy finally starts to contract, when millions of U.S. homes start to lose value, when consumer interest rates rise and payments double on credit cards, when gas & travel become prohibitively more expensive, when the American consumer is finally tapped out and no longer has the discretionary money to gamble away in Vegas?
Answer: Gaming revenues will drop, hotel occupancy rates will fall, and thousands of layoffs will follow.
Those who find themselves unemployed will quickly find that they have very limited options, as the entire hotel & gaming industry will be feeling the same economic pains. The lack of industry diversification in the city will be a killer...
Once the LV layoffs begin, more homes will go into foreclosure, as people won't be able to make their mortgage payments. Then businesses outside of the casino industry (local restaurants, retail, home improvements, beauty, health care, etc) will also begin to feel the pain. Eventually, a chain reaction of dominoes will begin to fall, and ultimately the number of outbound U-hauls will vastly exceed those inbound...
Back to Today:
Though many gaming industry and community leaders have tried to keep it under wraps for several months now, the long-held Las Vegas secret is finally making it out to the masses: The gravy train has ended and Las Vegas is quickly becoming one of the worst economies in the nation.
- Airline numbers are down/tourism is falling
- Hotel occupancy significantly lower
- Tax revenue is cratering
- Massive State Budget Shortfalls
- #1 in foreclosures for 23rd straight month (1 in 61 houses)
- Top of the list in home price declines
- 1/2 homeowners upside down on mortgage
- Swiftly imploding construction industry
- Major Construction Projects canceled or "On Hold"
- "Official" unemployment rate of 7.6%
- Numerous casinos facing budget shortfalls/bankruptcy
I could go on, but believe the point has been made. The LV economic situation is becoming dire and unless we see a quick rebound in tourism and gaming (highly unlikely), it is destined to get far worse in the months ahead.
With that said, the most recent Gaming report released on December 11th announced Las Vegas Strip gambling revenue fell 26 percent in Oct - the worst report EVER!
"As expected, October was another difficult month for the Las Vegas Strip as the credit crisis took hold and paralyzed consumers," Jacob Oberman, director of gaming research and analysis for CB Richard Ellis, said in an e-mail to clients and investors. "More importantly, housing markets across the nation continue to weaken, which will continue to pressure Las Vegas going forward."
So what can we expect to see in the weeks and months ahead?
Dear readers, many Las Vegas casinos are operating on life-support and though they've been trying to reduce operating expenses/costs in the attempt to pull through to the other side, there currently is no "other side" - not even a glimmer of light at the end of this tunnel, and (I believe) future layoffs are the next big domino to fall...
Though industry personnel cuts have largely been held "under the radar" while quietly picking up steam, we've yet to see the MASSIVE cuts required to keep the industry solvent - this will likley change in the coming weeks and months ahead, as thousands upon thousands of newly unemployed Las Vegans usher in a bleak 2009.
Starting today, lay offs will be the fate of more than 200 Las Vegas Sands Corporation employees.
The company, taking a line straight from Ebeneezer Scrooge, decided that over $6.5 million in bonuses were being cut for 2008. They did not stop there, however, announcing that they would be firing over 200 employees right before the holidays.
On Friday, employees will begin to be notified that their childrens' Chirstmas would become a product of the slow economy. Employees who have been with the company for years will be told they no longer have jobs.
"To do this right before the holidays shows just how desperate Las Vegas Sands has become. They have now tipped their hand on just how much danger they are in, and it will hurt them dearly with their investors," said financial analyst Thomas Drowley.
Sands was quick to try and diffuse the situation through the media, trying to ensure customers that their casinos are still up and running. "It won't impact the customer experience at our properties," said spokesman Ron Reese.
What it will impact is the families of 216 workers. Many of these workers have already spent money for the holidays, and now they will be struggling to pay their bills.
In closing, I'd like to leave you with a few more words that I wrote in 2006:
When tourism starts to wane, due to people running out of discretionary cash, gaming/hotel industry layoffs will follow, cascading the impacts of the already doomed Valley housing market, as more locals will be unable to meet their monthly mortgage obligations. Reduced spending levels, increasing layoffs, magnified home foreclosures and tightening credit conditions will cause a doubly painful domino effect on the commercial real estate markets and retail sectors and in due time, the impacts will be extremely painful to the entire economy. State tax revenue will tank, crys for budget cuts will prevail and the government layoffs to follow will only exacerbate/compound the situation.
Yes dear readers - the gravy train has ended for Las Vegas and I expect unemployment to be brutal in 2009 - the next big domino to fall!
Las Vegas Unemployment data as extracted from the BLS on Dec 14th 2008. Note: Though spiking upwards, these numbers are severely understated through the use of U-3 data - Click here for more info: Unemployment Rate Reality
Bottom line: Doubling the stated figures below will bring you much closer to the real unemployment rate truth.