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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