Economist sees solid foundation for Las Vegas recovery

While there are risks to the economy locally and nationally, the fundamentals behind the recovery are good and have improved tremendously over the last few years, according to an economist with Beacon Economics.

Christopher Thornberg, a founding partner at Los Angeles-based Beacon Economics LLC, and Bruce Simon, City National Bank’s chief investment officer, presented their forecasts Wednesday at the bank’s 2014 Economic Forecast and Market Update.

Thornberg expected U.S. growth of 3 percent to 3.5 percent this year. He said Nevada took a double whammy during the recession from subprime loans and a resulting decline in gambling and visitor revenues, as many California residents also suffered from subprime loans.

Simon said bankers tend to be more conservative, with City National’s estimate for U.S. growth this year at 2.5 percent to 3 percent. Simon said “five years out of recession… we are returning to a more (stable) environment.”

“Nevada and Las Vegas are turning the corner,” Thornberg told about 120 people gathered in a ballroom at the MGM Grand. “We expect 2014 to be a good year, with 2015 being an even better year.”

He said 2013 ended on a strong note, with consumers moving beyond the payroll tax hit in the second half, exports growing, and state and local governments starting to see improvements in fiscal health and hiring.

Thornberg cautioned that there are still issues restraining growth. Among them were bank credit remaining tight, consumers still not saving enough and needed long-term entitlement reforms.

Thornberg also said he didn’t expect the Federal Reserve to “turn around and crank up the federal funds rate” anytime soon, as it’s still unwinding its fiscal stimulus. On Wednesday, the fed funds rate, or interest rate at which banks lend money to each other, was 0.25 percent.

Thornberg said there was good news for Nevada’s economy. He said the employment picture continues to recover, with payrolls increasing 1.8 percent year over year, while the 8.8 percent unemployment rate is down 1 percent, but still above the national average.

“It’s not just gaming, the economy has been expanding over the last few years,” he said.

According to data compiled by Beacon Economics, hospitality-food service is still 18.3 percent of the local job market, but finance and insurance has grown from 8.3 percent in 2001 to 12.4 percent in 2012.

Thornberg said transportation, manufacturing, health care and professional services are all sectors of the local economy that continue to expand. He expected that trend to “continue over the next three years.”

But to get to a full recovery, or close the gaps in the economy, Thornberg said, “first you need to know where the gaps exist.”

“It’s not taxes, it’s not blue states, it’s not red states, it’s not Obamacare,” Thornberg said. “It boils down to three points of the economy. Construction as part of GDP was 9 percent before (the recession), today it’s 6 percent.”

He said the country still has to deal with its trade imbalance and government expenditures.

“I’m not talking about unemployment checks, food stamps,” Thornberg said. “What I’m talking about here is actual investments in public service, roads, bridges, infrastructure, schools. All the stuff we call public investments. Those are still considerably lower than they were.”

Thornberg, a former chief economic adviser to the California State Controller’s Office, discussed the federal government’s trillions of dollars of debt and the impact of the Affordable Care Art, which he described as “not the issue.”

“I realize there is a group of people out there who are very sure the debt is an enormous issue for our economy,” Thornberg said. “But it really isn’t. Yes, there is $15 trillion of debt outstanding … of that outstanding debt, 40 percent, or $6 trillion of it, is owned by the federal government.”

Thornberg said 30 percent of the debt is held by the Social Security trust fund, while the Federal Reserve holds 10 percent. The actual amount being held outside the U.S. is 60 percent, which he described as “not a crisis, folks.”

“It’s not a crisis by any stretch of the imagination,” Thornberg said. “With the deficit closing on its own and higher taxes … we are OK.”

In terms of health care, Thornberg said it’s not about the Affordable Care Act, also known as Obamacare, because “if you sit down and run the numbers, the (ACA) on one level makes sense.”

“You have a car, you are supposed to have insurance,” he said. “You have a house, you should have fire insurance. If you are alive, shouldn’t you have health insurance? The individual mandate at some level makes economic sense.”

Thornberg said while you can argue about the Affordable Care Act, it doesn’t work on one fundamental level, bringing down costs. He said the U.S. spends on average $8,608 per person per year.

“Our real problem with health care is that we are spending 40 percent more per person, per year,” Thornberg said. “That is the problem. We are overcharged and overconsume and nothing in the Affordable Care Act deals with (it) and until we ask real questions … the health care crisis isn’t going anywhere.”

Contact reporter Chris Sieroty at csieroty@reviewjournal.com or 702-477-3893. Follow @sierotyfeatures on Twitter.