Valley’s economic output rises, but other indicators slumping

New numbers from a national research group show a mixed bag of economic news for Las Vegas.

Brookings Mountain West's Mountain Monitor, which is being released to day, revealed some positive local trends, but it also found that high un­employment continues to bedevil Southern Nevada.

To summarize the findings: The Las Vegas Valley's gross metropolitan product, or economic output, surged in the quarter, but that improvement didn't translate into employment gains. Plus, the city's housing sector remained mired in a downward spiral, though the market finally began chewing briskly through its oversupply of bank-owned homes.

"It's definitely a sobering picture, but there are a few unalloyed signs of recovery, and it's good to know that recovery is under way," said Mark Muro, a director of Brookings Mountain West. "It may not feel very good yet, but eventually more indicators will turn upward."

Added Robert Lang, a University of Nevada, Las Vegas professor and also a director of Brookings Mountain West: "We're probably at an inflection point, but it's a fragile one."

A BRIGHT SPOT

That spike in gross metro product proved perhaps the brightest local spot in the Brookings report, which evaluated cities in Nevada, Idaho, Utah, Colorado, Arizona and New Mexico. From the third quarter to the fourth quarter, local gross metro product grew 0.7 percent, for one of its best quarterly performances since the recession began.

Combine that jump with recent reports of improving taxable sales, rising visitor volumes and stabilizing gaming revenue, and those indicators should point to gains in the job market, right? Well, not yet.

The Brookings study noted that Las Vegas grappled with "crushing" unemployment of 14.9 percent in the fourth quarter, even as 70 percent of metropolitan areas in the report's Intermountain West region added jobs in the period.

Observers offered several explanations for why the upward swing in gross metro product didn't yield more jobs.

"One lesson of this recession is that employers have gotten a lot leaner and found ways to maintain services with lower body counts," Muro said. "It's a buyer's market. Workers are fearful, and employers are looking to get more work out of them. It has proven possible to get (gross metro product) growth without significant employment growth."

Lang cited another factor that might be keeping higher output from generating jobs.

A good deal of the city's newer wealth comes from operations in other states and countries, as locally based resort owners open hotel-casinos in far-flung markets including Singapore and Macau. Those corporate earnings come back to those local corporate headquarters, but because they didn't come from greater economic activity here, they don't lead to a jobs boom, Lang said.

"This is a very different position for Las Vegas. The city was always consumer-driven, but it's beginning to take on a far more complex headquarters function," he said. "And in headquarters cities, you can see a bump in a region's output, because there is a demand for more business services, but it's not driving the old part of the Las Vegas economy, which was to put up more houses and to put up more (hotel) rooms."

SUSTAINED HIGH DEBT A DAMPER

And don't discount the role of sustained high debt levels in keeping a lid on employment growth, added Brian Gordon, a principal in local research and consulting firm Applied Analysis. A number of gaming companies -- and consumers -- continue to wrestle with massive amounts of debt incurred during the boom, and any improved economic output is going toward stabilizing balance sheets rather than investing or spending.

"Until businesses and residents are able to get out from under water, we wouldn't expect to see any significant amount of job impact" based on higher output, Gordon said.

Like output, the local housing market flashed bright spots in the fourth quarter. Las Vegas made "significant inroads" chipping away at its oversupply of bank-owned homes, with inventory dropping to 15.3 bank-owned homes per 1,000 homes. That's down from nearly 17 homes per 1,000 a quarter earlier. Yet, the fourth-quarter inventory ran well above a national average of 5.2 homes per 1,000.

Partly because of that overhang of bank-owned homes, local price declines accelerated from the third quarter to the fourth, the report said. Las Vegas claims a "huge" housing stock in relation to its population and residents' purchasing ability, Muro said.

Taken altogether, the Brookings report portrays a Las Vegas that, despite some improvements, continues to suffer more than other markets regionally and nation­wide. That worse-than-average performance is common among consumption-oriented, real estate-driven markets at the periphery of the Intermountain West, Muro said, with cities including Phoenix and Boise, Idaho also hurting even as other markets begin recoveries.

Las Vegas should join the party eventually, experts agreed.

It's tough to predict when, but that rising gross metro product must translate into more jobs at some point, Muro said.

Lang said he expects construction of a highway around Boulder City and the building of high-speed railways to eventually create jobs and also bolster visitor access to Las Vegas. The addition of several international gates inside the under-construction Terminal 3 at Mc­Carran International Airport will also help bring more tourists here when it opens in 2012, Lang said .

But it'll be a while before any new investments pay dividends for the market, observers said.

"The region ought not to minimize in any way the gravity of this massive event, which is dragging on in a way that suggests it's very different from past business-cycle reversals," Muro said. "This is a big, long event."

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