Local economists still optimistic

First came $4-a-gallon gasoline.

Then an earthquake and tsunami in Japan added to U.S. economic woes, disrupting supply chains and hobbling manufacturing and sales of durable goods.

The federal debt crisis followed, adding uncertainty to the mix.

This week, the hits kept coming: Stocks plummeted Thursday, followed by a lukewarm jobs report and a historic downgrade of the national debt on Friday.

But even with all that bleak news, local economists said they're still optimistic about Southern Nevada's future. They said tourism has absorbed the economic punches, with visitor volumes approaching their pre-recession peak.

What's more, tourists should keep flocking to Las Vegas, though they'll spend less.

The economists did note that uncertainty about federal debt could hurt long-term consumer and business confidence.

"I look at the national news overall as unfavorable for Las Vegas," said Steve Brown, director of the Center for Business and Economic Research at the University of Nevada-Las Vegas.

"It would be better if the stock market were doing better and the jobs report were stronger, but we're still seeing good growth in the tourism sector without those things,'' he said.

Jeremy Aguero, a principal in local research firm Applied Analysis, agreed that recent visitation jumps show long-term promise for the local economy. Visitor volume dipped from a pre-downturn peak of 39.2 million in 2007 to a recession-era low of 36.4 million in 2009 but rebounded in the first five months of 2011.

The numbers could return to their highs by year's end: Through May, 16 million people had visited Las Vegas, the same as in the first five months of 2007.

"Think of the fact that, in the worst period in Nevada's modern economic history, 36 million visitors still came to Las Vegas, and we're now almost back to 38 million," Aguero said. "The trend of 1 percent or 2 percent growth, month-in and month-out, is a sustainable rate."

To be sure, this week's economic turbulence could scare off visitors in July and August, Aguero said.

The newest developments also throw nongaming businesses into wait-and-see mode, as executives fret over a weak recovery and think twice about hiring or expanding, Aguero said.

Still, the local leisure and hospitality sector, which drives the rest of the area's economy, should grow through 2011 and beyond, experts agreed.

The share of international visitors to Las Vegas has jumped to 18 percent, up from 12 percent in 2008, an increase that bodes well for finding new feeder markets, Aguero said. Also, gaming now accounts for less than 40 percent of revenue on the Strip, an indication of interest in diverse entertainment offerings that will in turn draw a more varied customer base.

Recession fatigue boon for Strip

Recession fatigue will boost Strip visitation as well, as consumers who didn't travel during the downturn finally get away, Brown said.

The only problem? They're spending less. So although tourism is providing growth, it's not enough growth to percolate through the rest of the economy and offset downdrafts from the beleaguered construction sector, Brown said.

The one lingering problem that could limit gains in local tourism and business? The federal debt.

Aguero and Brown both said Tuesday's debt ceiling deal merely "kicked the can down the road," without producing a meaningful plan to eliminate the debt or curb deficits. That failure leaves an economic headwind that will affect the country and Las Vegas for the next decade, Aguero said.

"People don't know how the deficit will be reduced yet -- whether it will be through increased taxes or cuts in spending," Brown said. "Congress and the president are creating a lot of uncertainty in an environment where there's already a lot of uncertainty."

Uncertainty and weak financial and housing markets also make it tough for individuals and businesses to relocate, a big problem for a city that relies on in-migration for growth.

Add it all up, and Southern Nevada's economy isn't likely to return to its recession-era lows or its boom-era highs, observers said. Parts of the economy will perform well -- some of Aguero's quick-serve restaurant clients report their best numbers ever -- while others, including construction, will struggle.

"The economy is going to be up and down, and it won't be symmetrical," Aguero said. "There are pockets of prosperity, but there are also a number of companies finding that the new reality doesn't work as well for them.''

Contact reporter Jennifer Robison at jrobison@reviewjournal.com or 702-380-4512.