Analysts see potential dark cloud for Las Vegas economy in 2013

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Jeremy Aguero

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John Restrepo

The already-struggling Las Vegas economy could face more problems if the United States slips into a recession next year, local analysts say.

On Wednesday, the nonpartisan Congressional Budget Office warned that a "fiscal cliff" threatens to cause a recession that would push the U.S. unemployment rate up from 8.3 percent to 9 percent. The fiscal cliff is a combination of circumstances set to begin in January unless Congress and the president break an impasse over the federal budget. They include spending cuts and tax increases that together would reduce the federal deficit by about $500 billion next year.

"What we do know is that 84 percent of visitation to Las Vegas is domestic, and consumers are hypersensitive to any sign that the economy will move back into recession," said Jeremy Aguero, a principal at Applied Analysis in Las Vegas. "Combining our nation’s potential fiscal crisis with a tenuous fiscal condition in Europe, slower growth in developing nations, $3.50 gasoline and the near certainly of higher food prices places a pretty dark cloud over 2013."

Compared to states with more diversified economies, Nevada has more to lose in another U.S. recession because it is so heavily dependent on the health of the U.S. economy. Simply put, as Americans lose their jobs or face foreclosure, they're less likely to visit casinos in places like Las Vegas, Reno, Lake Tahoe, Mesquite and Laughlin.

The CBO forecasts a recession with a 0.5 percent decline in U.S. economic output next year if the fiscal cliff isn't averted.

"The impact on Las Vegas’ consumption-based economy would likely be severe because of a return to growing unemployment with a commensurate reduction in spending," said John Restrepo, principal of RCG Economics LLC in Las Vegas.

Restrepo noted that if the fiscal cliff is avoided, the CBO expects U.S. gross domestic product to grow at a "relatively modest" rate of 1.7 percent.

"If this occurs, then the Southern Nevada economy will continue to bump along the bottom like it has been for the last 18 to 24 months," Restrepo said.

While the national recession ended in June 2009, Nevada's localized economic downturn has continued with unemployment still elevated at 12 percent.

Restrepo said government officials and political candidates need to quickly address the nation's budgetary problems.

"Time is running out, and businesses and consumers already expect that little will be resolved until the 11th hour because of the election, and these expectations are already being factored into their financial planning," he said. "This uncertainty is one of the reasons consumer and business spending has started to slow in recent months."

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  1. It all sounds grim, and it feels like we are bouncing on the bottom already. We know that we are not descending into a recession, as we are deeply into one of unknown duration. Depending on the gaming industry seems risky, but it seems to be all we know how to do. We must take some responsibility for this.

  2. If the "fiscal cliff" can only be avoided by continuing to overspend by more than a trillion each year, then what other choice is there? You may as well drive off that cliff now and make a sensible first step in approaching a balanced budget.
    Continuing unabated on the obscene overspending of the past twelve years is an absolute guarantee of plunging America permanently into a bottomless abyss.
    It's appallling how self-serving and short-sighted most of America's politicians have become. Perhaps most of them are simply hoping to keep the precarious house of cards intact for another year or two in order to give them ample time to move most of their assets offshore? In any event, they're certainly not doing future generations of Americans any favors by maintaining current spending patterns and low effective tax rates.

  3. Sure. And the Mayans predict the world will end ... just in time!

    Good thing John Paulson doesn't buy into this Chicken LIttle mentality. Nor did any of the pioneers who built this city.

  4. Europe is heading into a second recession. It's PMI has fallen below 50 for 2 months showing a contraction.

    China's manufacturing PMI also fell below 50. Europe is the China's single largest export market.

    The US manufacturing activity improved, and it's PMI is still above 50. However, new export orders declined for a third straight month because of reduced demand in Europe, while the pace of hiring slowed for the fifth month in a row.

    "The indicators taken as a whole indicate a material slowdown in the pace of the world economy," said economist Philip Shaw at Investec.

    Our economy is linked to the global economy, so we have to watch more than just the US economic state, and be prepared for moving into another recession in the future, or possibly a deepening recess in LV.

    Read more: http://in.reuters.com/article/2012/08/23...

  5. @ FromBellevilleCanada

    It's honestly not appaling at all, but is rather the natural course of things. I'm not saying it's right, but it's absolutely understandable given the circumstances.

    The dysfunction of Congress and the Senate is simply due to supply and demand. The members of both houses demand money, and only corporations and special interests are able to supply the amounts of cash that they need.

    There are also no repercussions either. Get caught with your hand in the cookie jar? You'll just get to to work at the cookie factory. That pretty much sums up how it works when you consider so many of these politicians get kickbacks in the private sector with jobs as lobbyists and consultants for the very interests the funded them while in office, after they leave their positions.

    Most Americans are never, EVER going to vote against tax cuts for the rich either. We're fed a steady diet of gameshows and fairytale "reality" shows that teach us that one day we'll be rich too, so we have this delusion that one day we'll be just like the 1%, We don't want anyone to take away our money once we get there, so we vote laws to protect the rich since we believe that we'll all be just like them one day.

    Disagree with that, and you're just a Socialist, Communist, "Liberal Nut-Job", "Teabagger" or whatever key buzzword of the day is used to initiate a Chilling Effect to keep the dissident voices silent so that they don't challenge the system. The powers that be have got us all so busy fighting amongst ourselves with these labels that we never get a chance to fight the root of the problem to correct things.

  6. The "dark cloud?" Osama Obama being reelected! His continued ignorance of basic economics, along with his fellow travelers avid agenda to "transform" the USA, will keep Nevada in general and Las Vegas in particular on the road to ruin. He comes here with his "Cheshire Cat" grin and with his hand out begging for "4 more years," all the while bad-mouthing LV and urging folks to stay away. Voting for the cretin is as smart as alcohols drinking more heavily in order to beat their addiction. Wise up, fellow Nevadans, the guy is poison on two legs and will sink us deeper into unemployment and housing foreclosures. Let's right the ship of state! Come November - vote Romney & Ryan!

  7. Jerry, voting for R & R is like voting for the 2 Bushes. More tax breaks for giant energy companies, and FU little guys. Your attitude is so Texas, it's sad. I hope you're retired, because if not, go back to Texas, and revel in your stupidity.