Las Vegas Economy Has Long Road Of Recovery Ahead
Last year around this time, the excitement over the new stadium, a new football team, continued success of the Vegas Golden Knights and booming construction had Las Vegas feeling like a city on the edge of a new era.
Then came the pandemic.
And now - Las Vegas will once again be a city ravaged by the economic fallout.
Jeremy Aguero is a principal at Applied Analysis and was a keynote speaker at the Las Vegas Perspective event this week.
He told KNPR’s State of Nevada that he remembers after the 9/11 terror attacks, he didn’t think the state’s economy could worse, but then, the Great Recession hit and it was worse – now the pandemic.
“Its orders of magnitude worse than we’ve seen before,” he said.
There are some big differences between the recession, which hit Las Vegas particularly hard, and the economic downturn caused by the pandemic, he said.
The biggest difference is the speed at which the current crisis hit.
“During the Great Recession, we lost about 200,000 jobs in our community over about two and a half years,” Aguero said, “It was long, and it was dragged out and it was very painful. With the COVID-19 crisis, we’ve lost over 250,000 in about two months.”
Another stark difference is how the whole thing will end. With the recession, it was a matter of time before businesses started to rebuild and people started to get back to work.
“Recovery is not a function of time. It’s not something we’re just going to kind of repair and work through. It’s really a function of science,” he said.
Without a vaccine or more effective treatments, getting back to normal will be difficult, Aguero said.
The final big difference is the stimulus money the government has handed out. During the Great Recession, trillions were given to banks to keep them afloat. The CARES Act handed out trillions of dollars, but Aguero said most of that money has gone directly to people in need.
“That stimulus right now is really propping up our community’s economy, and for us, I think it is really masking some of the deeper effects associated with the COVID-19 crisis,” he said.
And that money is needed everywhere in the economy. Aguero said there isn’t an industry that hasn’t been impacted by the downturn, including health care. He said people might be surprised to learn that health care has seen a downturn. Many people are choosing not to address health care needs for fear of the virus.
While every industry has been affected, the industry that is having the largest impact on the overall economy is tourism.
There are a lot of reasons why people come to Las Vegas but one of the biggest draws is the convention and trade show industry. That has come to a standstill. The Consumer Electronics Show will be virtual instead of in-person in January.
Aguero said it is understandable why CES moved to a virtual platform. The show is one of the largest and brings in a lot of international attendees. The health and safety of everyone are paramount, he said.
Overall, economists like Aguero will be keeping a very close eye on the convention industry.
“What we all need to keep in the back of our mind is – the conventions want to be here. They want to be in-person. They don’t want to have to go virtual. They’re going to try to hold off making those types of decisions where they can,” he said.
Another large draw for tourists is the hundreds of live events that happen in Las Vegas every year like the National Finals Rodeo, which is scheduled for December.
Aguero said, as of right now, all of those events are at risk of being canceled because of the pandemic.
“Until we can have people feel comfortable getting in a car or getting in a plane and staying in a hotel room and being around other people those are going to be challenging to put on – if not impossible to put on,” he said.
Aguero said the best way for Las Vegans to help the city’s tourism economy is by following the precautions to stop the spread of the virus.
“Make sure that Las Vegas holds itself out, and actually does live by, taking whatever precautions are necessary to reduce the incidents of the virus and the spread of the virus,” he said.
Just like Nevada is the gold standard for gaming regulations, Las Vegas needs to be the gold standard for virus protection and control.
“If we continue to see an uptick, if we continue to be a ‘hot spot’ or a ‘red state’ – however people want to look at it – that is going to have not only public health implications, which are serious and significant, but also economic and fiscal implications are going to affect a much broader cross-section of our community,” he said.
Tourism is a large part of our economy but not the only part. Consumer spending also has a large impact and the outbreak has been felt there as well.
In his research, Aguero has found three types of people: Those that don’t think the coronavirus is a big deal and the whole thing is being blown out of proportion. Those that want to spend but are looking for reassurance from public health officials, and then, there are those who are very worried about the virus and aren’t going to try to return to normal without a vaccine.
He said each of those groups is reacting very differently when it comes to spending, which is causing not only an economic impact but also a social one. He said people are not sure what is safe behavior and what is not.
Plus, there is a lot of finger-pointing about what is the right thing to do.
“People are mad because people are wearing a mask. They’re also mad because they’re not wearing a mask because of their perception and their own line of where that is,” he said.
He said the changing guidelines about masks and safe behavior has caused a lot of confusion. He believes it has pushed some people to believe the virus isn’t real and others it has pushed to the direct opposite that it is unsafe to leave their homes.
The reality, he believes, is somewhere in the middle.
With cases of the virus on the rise in Nevada, there is a lot of concern about whether Gov. Steve Sisolak will call for a second lockdown of the economy.
“Closing down our economy again would be devastating,” he said.
The degree of devastation is something he couldn’t even put a number on.
“I think the governor and state legislators, and even local government officials, are doing everything they can to keep the economy open… if they can’t keep the economy open, it’s going to be devastating for our economy beyond what we’ve already seen, which is remarkable in its own right,” he said.
One of his biggest concerns is that other states will start to close their borders to Nevada. New York has already done that but if bordering states like California and Arizona, which account for the largest number of drive-in tourists, close their borders the economy might get shut down on its own because people can’t come here without being put into quarantine when they return home.
A recent Wall Street Journal article characterized the economic crisis as an ‘existential threat’ to Nevada’s entire business model.
Aguero noted that Time Magazine had a similar article during the Great Recession, which was proven wrong.
However, he does agree that the pandemic poses a threat to the state’s economy simply because of how different it is.
“With a third of our economy, more than almost anywhere else in the entire nation, predicated on travel and tourism, leisure and hospitality that puts us directly in the crosshairs of a virus that doesn’t allow people to do that,” he said
But, as far as the virus being a threat to the city’s very existence, Aguero does not believe it is.
“Do I believe that that is going to be the end of Las Vegas or the end of Nevada? Absolutely not. But do I believe it is going to be a formattable challenge that we are going to have to work through not in a matter of months but rather in a matter of years? I absolutely do,” he said
While he doesn’t believe the pandemic is the end of Las Vegas as we know it, he does say it will take patience to get to the other side of the crisis.
“We’re looking at a recovery cycle of somewhere between 18 and 36 months,” he said.
He is not as concerned about the economy running at 25 percent of its potential for a few months. Instead, he is more concerned about it running at 70 or 75 percent of its potential for years.
“It is the long arc of this coronavirus crisis that poses the greatest risk to our economy,” he said.
Currently, so many businesses are running on government stimulus money and Aguero is very concerned about when that money burns off because businesses are not designed to function at 70 or 80 percent of their capacity for a long time.
He admits that when looking at the numbers it feels a bit like chronicling the apocalypse, but he knows it really isn’t.
There is a glimmer of hope and that is the city itself.
“If there is one thing that the Las Vegas Strip is or that our tourism sector is – it is resilient and resourceful,” he said.
He said the city’s ability to be creative and pivot when it needs to will help it survive. When times are good, Las Vegas offers new events and exciting new properties. When times are bad, it offers discount rooms and $3.99 steak-and-egg deals.
“That is some of the magic that is Las Vegas. Its ability to pivot and reposition itself based on the reality that it's dealing with,” Aguero.
He said he is not going to underestimate the hotel-casino industry’s ability to welcome back visitors.
Jeremy Aguero, principal, Applied Analysis