In a hurry for rebound of local economy? Chill

This is going to take a while.

That's the prevailing take on economic recovery in Southern Nevada, according to experts at Monday's Midyear Economic Outlook, a forecasting event held at Palazzo by the Center for Business and Economic Research at the University of Nevada, Las Vegas.

The local market is showing its share of green shoots, including improving visitor volume and falling unemployment, panelists agreed. But a slowing national economy and slumping consumer spending could mean less business for Southern Nevada's core tourism sector, and that in turn would hurt recovery here.

Start with the country's gross domestic product, which rose at an annual rate of 1.8 percent in the first quarter. That was down from an expansion of 3.1 percent in the fourth quarter.

Part of the slump came from manufacturing supply-chain disruptions following March's earthquake and tsunami in Japan, but Steve Brown, director of the Center for Business and Economic Research, also blamed weaker spending among consumers, investors and governments.

Brown projected GDP gains of 1.6 percent in the second quarter. He anticipates a rebound to 3 percent or so in 2012, though potential troubles including falling housing prices and rising energy costs could curb growth.

"There's plenty of room for optimism. There's an opportunity for the economy to really take off," Brown said. "But we'll probably muddle along as those headwinds cancel out the positives. A light bulb won't click on and make things suddenly pick up."

Still, the U.S. economy is expanding, Brown noted, and Nevada is getting back on track, too.

The Silver State's May jobless rate of 12.1 percent was well below its 14.9 percent December peak. No other Western state has seen such big drops in joblessness in so short a period, Brown noted.

Steep declines in local home prices have also flattened out. Housing prices here fell 45 percent from January 2007 to August 2009, compared with a 29 percent drop nationwide in the same period. Since May 2010, though, local home prices have dipped 5.4 percent -- same as the rest of the nation.

Housing inventory is still a problem, though. Data from Clark County and NV Energy show an 8.1 percent housing vacancy rate. At current sales rates, it could take the city 2 ½ years to work through that inventory, and for home prices to begin increasing.

Plus, local job growth in tourism has been offset by sustained drops in the building sector.

"All I can say is, construction continues to fall, but at a slowing rate, and our chart stops at zero," Brown said.

Overall, Brown's local economic forecast called for housing permits to fall 4.9 percent in 2011, then rise 1.5 percent in 2012. Personal incomes should increase 2.6 percent in 2011 and 3.4 percent in 2012, while employment should expand 0.4 percent in 2011 and 1.2 percent in 2012.

And based on improving employment and personal incomes across the West, Southern Nevada's visitor volume should jump nearly 4 percent a year in 2011 and 2012. Gross gaming revenue should go up as well, including a 1.5 percent improvement in 2011 and a 2.9 percent boost in 2012.

That forecast indicates Southern Nevada's economy will experience slow growth in 2011 and 2012, Brown said, with a recovery in the area's real estate markets to follow later.

Just how much later depends on the property sub-market, panelists agreed.

Residential real estate shows signs of turnaround, though the fragile market remains vulnerable, said Frank Nason, president and corporate broker of local sales and marketing research firm Residential Resources.

Sales of existing homes ticked up year over year from February through May, after a 10-month string of declines, Nason said. Closings are 3.5 percent ahead of closings a year ago. The supply of single-family homes for sale has dropped to 6.8 months, down from 11 months in 2009. But resale prices are down 10 percent year over year, to a median of $126,000.

Nason said he's optimistic about the market's prospects, but he said the city will need positive job growth and household formation before the market sees substantial improvement.

With a median price of $192,000, the new-home segment is struggling to compete with more affordable resales, added Dennis Smith, president of Home Builders Research in Las Vegas.

Smith said he expects builders to apply for 4,000 new-home building permits in 2011, down from more than 35,000 a year at the city's peak in 2005 and 2006.

Vacancy rates show areas of big oversupply in commercial markets as well, said John Restrepo, principal of Las Vegas consulting firm RCG Economics.

Southern Nevada's industrial and warehouse market has a 3.2-year inventory of empty properties. Spec office space, or space built without tenants lined up, has a 5-year inventory. Retail fares better, with less than a year's supply.

The city would need to add 60,000 jobs to reach a 6 percent unemployment rate, Restrepo added. That would take 10 years at current job creation rates, though he said he expects job growth to pick up enough to restore those jobs by 2014.

"It's a long and winding road to recovery,'' Restrepo said. "It's going to be slow and plodding."

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