Nevada leads the nation in unemployment


The economy has dealt Nevada a new economic woe.

The ignoble race to the bottom of the jobs market has officially bypassed the car-making mecca of Michigan and made its way to Nevada. The Silver State, once the country’s fastest-growing job market, has become the nation’s worst performer. Its May unemployment rate, a state record of 14 percent, is the highest in the land, dislodging Michigan from a distinction it owned for more than four years.

Unemployment in Las Vegas came in at 14.1 percent in May.

What’s more, Nevada’s jobless rate has soared 8.8 percentage points since the recession began in December 2007. That’s the biggest gain of any state.

For long-time observers of the state’s economy, Nevada’s new No. 1 status comes as a bit of a shock.

“I did not think I would live to see the day,” said Jeremy Aguero, a principal in local research and consulting firm Applied Analysis. “Frankly, I don’t know if anyone thought we’d go from among the nation’s lowest for unemployment to its highest. That doesn’t mean we didn’t realize we were susceptible to a downturn, but it’s sobering for all of us to see just how susceptible we are.”

Added Bill Anderson, chief economist with the state Department of Employment, Training and Rehabilitation: “If you’d asked me two years ago, when Nevada had essentially been the fastest-growing state in the nation for two decades running, one couldn’t have imagined that things would deteriorate this far. In previous recessions, the worst thing that happened was our job base held steady.”

That’s not what occurred this time, however. The state has lost about 180,000 jobs, including 83,000 positions in construction and 43,000 jobs in leisure and hospitality, noted Stephen Miller, an economics professor and department chairman in the College of Business at the University of Nevada, Las Vegas.

Nevada’s jobless rate continues to rise even as most other states have seen unemployment declines. Joblessness fell from April to May in 37 states. It also fell nationally, from 9.9 percent to 9.7 percent. Economists credited the declines mostly to discouraged workers surrendering the hunt for work and dropping out of the labor force. Hiring for the U.S. Census also contributed to job growth.

To understand why Nevada isn’t sharing in jobless declines, consider its unique economic landscape.

For one thing, the state’s labor force hasn’t dwindled. It’s actually grown 5.5 percent since January 2007, including a 1.6 percent increase year over year in May. Part of the gain could result from population growth, and part of it likely comes from stay-at-home spouses and retirees re-entering the work force to bolster flagging household finances, Anderson said.

Plus, Nevada simply grew faster than every other state, which means it had farther to fall. And don’t forget the state’s reliance on the leisure and hospitality sector and construction — its top two employment categories before the downturn arrived.

“The dynamics of this recession just hit home in Nevada,” Anderson said. “Almost all recessions have had a negative impact on the so-called Rust Belt (Midwestern manufacturing states), and we’ve been able to weather those storms. But the way this recession unfolded, it also affected housing and discretionary spending.”

So how long can Nevada expect to wear its dubious new mantle?

To forecast how the recession plays out in Nevada, observers are watching several broader trends.

Start with near-term hiring and layoff patterns. The state added 4,800 net new jobs in May, but 4,400 of those posts were temporary Census positions, so they won’t help long-term job formation. Come July 1, a new surge in unemployment could come as governments begin their fiscal years with smaller staffs to accommodate budget cuts.

And in an “alarming reversal” of historic trends, the number of jobs in the combined category of education and health services actually fell from April to May, Anderson noted. After spending most of the recession expanding in spite of the downturn, the sector shed 1,500 jobs, mostly among small medical and dental practices and training providers in vocational or technical schools. Anderson said it’s too early to tell whether the decline is a one-month anomaly or the beginning of a trend. For his part, Aguero believes the state remains underserved in the health sector, with room to grow.

Anderson is also eyeing barometers measuring consumer sentiment. The best scenario for Nevada’s jobs recovery would be a boost in consumer confidence and a willingness to budget for nonessentials such as travel, he said.

Visitor volume has already stopped its free fall, with statistics from the Las Vegas Convention and Visitors Authority showing stable or increasing tourism numbers for eight months running. Still, visitors aren’t spending as much as they used to. Aguero said he’s looking for hints that stabilized visitation is translating into staffing additions inside local resorts. Hotel-casinos now employ one person for each hotel room, down 40 percent from 1.4 people per room at the economy’s peak. If spending improves enough, the market could see that employee-room ratio begin to inch up.

Sustained trouble in housing markets could also affect Nevada’s job-growth prospects.

Nevada made part of its boom-era money on the relocation of retirees and small to mid-sized businesses. But many Americans owe more on their home than the home is worth, and that places them under a sort of “house arrest” whereby they can’t move, Aguero said.

Miller is homing in on talk of economic recovery faltering nationally, especially given lackluster retail sales. The concern? A double-dip recession, with revival cut short as the country sinks back into a second downturn.

“There should be some discussion about the possibility of another (federal) stimulus, though that’s a tough row to hoe, because people seem to be dead-set against fiscal spending,” Miller said.

Even the value of the dollar could affect recovery in the Silver State, Miller noted. As the dollar surges against a weakening euro, vacations to Las Vegas become more expensive for foreign visitors. That differential in buying power could curb improvements in local spending.

Experts say Nevada will face sustained job-market turbulence in coming months and even years. The state doesn’t need any new homes or office parks, so construction employment will languish. And consumers remain reluctant to spend thanks to relatively high national unemployment and home-foreclosure rates.

“Nevada will continue to struggle in the months ahead,” Anderson said. “I think the conventional wisdom is that we’re going to lag this national recovery. It’s going to take a long time for our residential and commercial construction sectors to rebound, and consumers have turned very cautious and are going to be very stingy when it comes to discretionary spending, including taking trips to Nevada’s tourist destinations.”

Job cuts have moderated; year-over-year job loss in May was 2.8 percent, down from 10.2 percent in the same period a year earlier, Anderson noted. Still, he said he expects ups and downs in unemployment in coming months, with slightly upward trends in the near term.

Aguero said he expects Nevada’s jobless rate to stay around 14 percent for the next six months or so, and it should remain relatively elevated into 2011. He said he wouldn’t be surprised if the rate creeps up slightly, or if the Silver State spends “a fair amount of time” in the top spot for unemployment. But Aguero also pointed to stabilization in the jobs base: Nevada has actually added jobs in some months in 2010, a departure from the unrelenting monthly declines of 2009.

Miller sounded more optimistic.

Unemployment is likelier to head downward rather than continue to rise, he said, and he expects some improvement in unemployment by the end of 2010.

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

 

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