Las Vegas seen benefiting from solid growth in ’16

Strap in for an interesting ride in 2016.

The world and U.S. economies face risks and challenges next year, but Las Vegas should benefit from relatively solid growth, according to a Tuesday panel of national economists at the Rio.

"The U.S. economy will keep growing. There's very little chance of recession or runaway inflation through 2016," said Ken Simonson, chief economist of Associated General Contractors of America, before an audience of more than 110 at the Economic Club of Las Vegas' 2016 Global Economic Outlook. The club is a nonpartisan, nonprofit group that promotes intellectual debate and economic discussion.

And on Tuesday night, that economic discussion turned to how Las Vegas may gain from a consumer-spending shift from goods to services, plus a strong construction sector.

Start with consumer spending, which is key to Southern Nevada's leisure-based economy.

This year will wrap as the best spending year since the federal stimulus program of 2009, said John Silvia, chief economist for Wells Fargo Securities.

What's different today is that consumers are buying more services, including travel and tourism, as they scale back on tangible goods such as furniture.

"They want an experience. It's an interesting change in U.S. society in how we spend money, and it's especially true in Las Vegas," Silvia said. "You don't sell or produce goods people take home. You produce services."

U.S. consumer spending in 2016 may ease off of its 2015 growth rate of more than 3 percent, Silvia said, but it should still expand.

Beyond consumer spending, construction will rank as an especially bright economic spot, Simonson said. Las Vegas is positioned to benefit.

The local and national building industries are expanding 10 percent to 12 percent a year — a return to pre-recession growth levels, Simonson said.

Expect near-double-digit growth in 2016 as well, driven by investments in public works, education, energy, manufacturing and lodging.

Las Vegas and Nevada have big building plays in all of those areas.

Simonson pointed in particular to the $560 million Project Neon expansion of Interstate 15; the Clark County School District's 10-year, $4.1 billion budget for 37 new schools and existing-school upgrades; potential new solar plants; Tesla's $5 billion gigafactory outside Reno; and the Strip's $4 billion Resorts World Las Vegas.

Still, the industry's climate isn't perfect.

Local construction employment still runs half of the 148,000-job base at its 2006 peak. Nationwide, construction jobs are 17 percent below highs, Simonson said. Plus, growth in revenue per available hotel room hovers in the 1 percent to 4 percent range, well below the 5 percent to 10 percent investors prefer. That means investors could quickly "turn off the spigot" if the industry heads south, Simonson said.

The housing sector could also struggle with affordability, Silvia said.

Rising land prices and higher prices per square foot for today's more upscale homes will push up prices and curb household formation among millennial buyers. There's "a change in attitude about whether buying a home makes sense," Silvia said.

Economists are eyeing broader global threats as well.

A terrorist attack on Americans, or a cyberattack on financial systems, "is a major threat we will face for some time," said Lynn Reaser, chief economist of the Fermanian Business & Economic Institute at Point Loma Nazarene University in San Diego.

Big forces shaping the 2016 economy will include a slowing Chinese economy; the sustained collapse of oil prices; global attempts to pump federal money into financial systems; a strong U.S. dollar; and the European migration crisis. A strong El Nino could yield devastating drought in the Eastern U.S. and catastrophic flooding in the West. The Eurozone may continue to struggle with member nations' fiscal woes as well, Reaser said.

Despite potential issues, Reaser forecasted "modest" improvements in growth in 2016 of about 3.5 percent worldwide and 2.2 percent in the United States.

Contact Jennifer Robison at jrobison@reviewjournal.com. Find @_JRobison on Twitter.