The Stat Pack
The 12-month moving average (MMA) of Clark County’s headline unemployment rate was 5.1 percent in February, the 7th month in a row that the rate has remained unchanged. The unemployment rate is 0.5 points below last February’s 5.6 percent. It reached its lowest level in October 2006 when it was just 4 percent. Southern Nevada, like Reno-Sparks, is now theoretically at “full employment.”
A fun addition to this month’s charts: Nevada excise tax revenues generated from marijuana through the first 7 months of sales are $34.9 million. (These taxes do not include sales and use taxes paid at point of sales at the dispensaries, or the annual licensing fees paid by the industry.) According to the Tax Department, tax revenue from the sale of marijuana is expected to reach $120 million during the next two years.
In February 2018 the RCG Employment Index’s 12-month moving average (“12MMA”) did not budge, holding at 98.7 for 7 straight months. On a YOY basis, the Index is up 0.5 points from February 2017, with the YOY gains continuing to dwindle as the Index remains unchanged. After reaching 1.3 in June of this year, the YOY difference has fallen steadily as the Index remains stagnant. The Index remains 1.3 points below the November 2006 peak of 100.
The 12MMA of Clark County’s headline unemployment rate was 5.1% in February, making this the 7th month in a row that the rate has remained unchanged. The unemployment rate is 0.5 points below last February’s 5.6%. It reached its lowest level over 11 years ago in October 2006 when it was just 4%. Southern Nevada is now theoretically at “full employment.” Considering this is the longest steady streak seen since the Great Recession hit approximately 11 years ago, we may be seeing the new normal in terms of unemployment post recovery.
The 12MMA rate of job growth in the Las Vegas MSA fell 0.1 points to 2.7%, continuing a downward trajectory begun in September 2015. Analysis by the Brookings Institution posits job growth at the regional and national levels has been suffering from the same effect: the slowdown is mainly due to decreasing demand for unskilled labor.
Construction in the Las Vegas MSA continues to be boosted by a strong housing market and improving commercial markets. In February 2018 the number of Southern Nevada construction workers rose by 4,958 (12MMA) from February 2017, a 9% increase, putting total construction jobs at 60,225. That makes 68 straight months (nearly 5 years) of construction job growth. However, President Donald Trump’s proposed tariffs on steel and aluminum may put a damper on Las Vegas’ construction job growth.
Construction jobs represent 6.4% of the region’s job-base. The current construction job count is well below the November 2006 peak of 108,833, when the industry had 11.4% of all MSA jobs. Pre-2008 construction job numbers, which were artificially inflated due to the real estate bubble, are not likely to been again for foreseeable future.
In February 2018 the Las Vegas MSA’s 12-month visitor count (annualized) was 42.1 million. This is down from the 42.8 million during the 12-month period ending in February 2017. The number of visitors to Clark County fell in February for the 9th month in a row, but the drop was small, this time by just -0.03%. When compared to February 2017, there was -1.7% YOY growth. This is the 7th month in a row YOY visitation has declined. We believe that the primary reason for the slowdown is a room capacity issue.
There were 42.2 million visitors to the Las Vegas MSA in 2017, compared to 42.9 million in 2016. So far over the first 2 months of 2018 the visitor total is 6.5 million. That is lower than both 2016 (6.8 million) and 2017 (6.7 million) over the same time frame. Visitor growth slowed considerably in 2017 with a YOY visitor growth rate average through December of -0.1%. The average rate of growth over 2016 was much better at 2.7%. We believe we have now entered a sustained period of slower growth. The month of greatest YOY growth since the Great Recession was September 2011, when visitor volume grew by 4.5%.
In February, Clark County’s annualized convention attendance saw a 1.1% gain from the previous month, putting the annualized total at 6.6 million. This increase was unable to make up for the -1.9% drop seen last month, and it puts the 12 month period ending in February 2018 slightly below the new record high of 6.65 million attendees during the 12 month period ending in December 2017. Compared to February 2017, convention attendance is up 6.4%. The previous annualized peak of 6.35 million was in January 2007.
Convention attendance saw significant gains in 2016 with 10 months of above 10% YOY growth. However, starting in October of 2016 YOY growth began to drop steadily until reaching a low in September 2017 of 1.1% YOY change. The YOY growth rate popped back up the following month and averaged 6.3% over the last 3 months of 2017. During the first 2 months of 2018 attendance grew by 5.9%. Demand growth is being limited by maxed-out capacities at Las Vegas’ various convention facilities. The good news: In June 2017, the Las Vegas Convention and Visitors Authority’s Board of Directors gave final approval for an expansion and renovation of the Las Vegas Convention Center, which will allow the city to host more conventioneers. The expansion is expected to be completed by 2022.
In January 2018, the 12MMA of hotel revenue per available room (RevPAR) in Clark County was $115.31, a gain of $0.72 (0.63%) from the previous month. This ends a four-month streak of negative monthly growth. Compared to January 2017, RevPAR is up $2.53 (2.2%), which continues its streak of YOY growth that began just over 7 years ago in December 2010. With January’s improvement in RevPar, the RevPAR 12MMA resumes its approach of the $119.43 peak which occurred in December 2007.
Note: RevPAR is a performance metric in the gaming and lodging industry. It is computed by dividing a resort’s or hotel’s room revenue by the room count and the number of days in the period being measured.
On a 12MMA basis gaming revenue net of baccarat was down -0.19% to 735.2 million in February. However, YOY growth continues in February at 3.3%, a small decline of 0.1 points from the year period ending in January 2018. This makes 37 months straight of positive YOY growth. February’s gaming revenues net of baccarat were 88.1% of the October 2007 peak of $834.4 million.
The net baccarat revenues are largely comprised of slot revenues, which generally reflect wagering by typical gamblers, especially U.S. gamblers. While changing spending patterns among millennials under 35 have caused a decrease in slot revenues, they are now recovering because US household disposable income is finally rising in real terms.
According to Home Builders Research, in February, total (new and resales) Clark County home closings on a 12MMA were down -0.25% from the previous month, making this the 2nd in 3 months the 12MMA has declined. However, on a YOY basis total home sales are still well above the previous year by 7.3%.
New home sales saw a YOY growth rate of 14% in February. While this rate is high, it is down 3 percentage-points from the previous month, continuing a downward trend in the YOY growth rate that began in August 2017. Existing home sales are growing steadily with a YOY growth rate of 6.1%. However, February’s YOY growth rate for existing home sales was the lowest seen since May 2015.
Per Home Builders Research, February’s 12MMA median home price (new and resale) was $250,016, a 1.09% gain over the previous month. Compared to February 2017, the price is up 12%, the highest YOY growth in weighted home price since October 2014. The current median home price remains well below the peak of $305,333, which was recorded 11 years ago in February 2007. February’s estimate is nearly 82% of the peak price.
The median new home price was up 7.1% from the previous year, reaching a new peak in February of $348,388. The previous peak of $327,066 occurred in February 2007.
The median resale home price was $231,283 in February, a 12.7% increase during the last 12 months. This was the biggest YOY increase since September 2014. The peak of $286,833 occurred over 10½ years ago in April 2007. This means that the current resale price has now recovered over 80% of its pre-recession peak. By comparison, the median resale home price in the Reno-Sparks MSA was over $110,000 higher at $341,485 (12MMA) in February 2018. Reno-Sparks MSA’s median home price (12MMA) is growing at 11.6% YOY.
The rate of home appreciation for new and resale homes continued its rising trend in February. YOY growth had dropped to 6.4% in December 2016 but rose steadily in the 2nd half of 2017, averaging 9.2% YOY growth over the last 6 months of the year. The 2 month YOY growth rate average for 2018 is 11.8%. The annual peak of 35.8% growth occurred in February 2005.
The 12MMA 30-year fixed rate mortgage in the Western Region was nearly unchanged, rising by just 0.02 points to 4% (12MMA) in March. This was the 2nd increase in a row after 2 straight dips, but the changes have been miniscule with the rate fluctuating between 3.97% and 4.02% over the last 7 months. The 10-year peak of 6.4% occurred in October 2006. While the 30-year fixed rate mortgage should remain relatively low, it will likely go up because of Federal Reserve actions.
The 12MMA Case-Shiller home price index for the Las Vegas MSA reached 164.2 in January 2018, a rise of 8.5% compared to January 2017. The YOY growth rate has been picking up steadily since March 2017. This past January, the trend continued with the rate rising by 0.4 points from December. The US index in January was up 1.0 again, reaching 200.9, an increase of 6% compared to the previous year. The Las Vegas index peaked at 233.2 in December 2006. The latest LV index is 70% of the peak. Both indexes have been on the rise since 2012. The greatest positive annual change (44.5%) in the Las Vegas index occurred in March 2005, while the greatest negative change (-31.8%) occurred in August 2009. These trends are similar to those reported by Home Builders Research.
The Housing Opportunity Index (“HOI”) for the Las Vegas MSA has now dropped 4 straight quarters after 7 quarters of increases, falling to 62.1 points in Q4 of 2017 on a 4-quarter moving average basis, or 72% of its peak. It dropped 0.6 points from 67.7 in Q1, another 0.8 points in Q2, 2.5 points in Q3 and 1.7 points in Q4. Affordable housing is on the decline in the Las Vegas MSA. The Las Vegas HOI peaked at 86.2 in Q1, 2012. It bottomed out at 15.4 in Q1, 2007 at the height of the housing boom. The 10-year average is 70.1.
The U.S. index experienced a more modest decline, falling from 59.5 in Q3, 2017 to 59.4 in Q4, 2017. Housing prices nationally appear to be stabilizing.
The HOI is based on the share of homes sold that are affordable to a family earning the median income in Clark County, assuming standard mortgage underwriting criteria.
The 10-year U.S. Treasury rose an additional 7 basis points in February and the 30-Day LIBOR followed suit, increasing 10 basis points to 1.67%. The FOMC will pay close attention to the impact of fiscal stimulus, an increasingly tight labor market, and core personal consumption as it plans to increase the Fed Funds rate three times this year. Many are planning for rates to be at or just under 3% by the end of 2018 and will likely rise to 3.5% by the end of 2019. The outlook appears solid for the economy and earnings, helping to support a continued appetite for risky assets even as worries about political tensions remain.
Assuming there are no geopolitical or macroeconomic crises, lending should not inhibit growth. With rising interest rates, the most pressing matter is between buyers and sellers; who will blink first?
Increased local resident and business spending in Nevada and Clark County continues to fuel rising taxable retail sales even though the rate of growth has been relatively flat since January 2016. We believe much of absolute growth in taxable sales is due to relatively healthy visitor spending numbers and strong construction activity. Another record high was reached in January when just under $3.47 billion in sales on a 12MMA occurred, a 3.4% rise from last year. This said, the YOY growth rate has trended down steadily from a recent high of 5% in May 2017. During the last 6 months, it has averaged 3.8%; the increase from the previous month was 0.33%.
January’s taxable sales are the highest ever recorded by the State of Nevada on a nominal basis (not inflation-adjusted). As such, they have boosted local and state government revenues and spending. Steadily improving local, regional and national job markets are key to this improvement. This is especially true regarding the health of regional and national economies, which have driven Southern Nevada’s growth, benefiting all of its sectors. They are also primary drivers of visitors and convention attendance to Las Vegas, which is ultimately reflected in tourism spending in the region.
This month, we introduce a new chart into Stat Pack. It displays Clark County taxable sales generated in a selected sample of what we are calling the “better known” activities. We hope this will give readers an insight into the level of economic activity in familiar industries. Some of these industries are not necessarily large generators of sales taxes, but we think readers will find them interesting.
In January 2018, Retail made up 56% of taxable sales of the better known (“BK”) sectors and 53% of total sales. Compared to January 2017, Retail was up 2 percentage-points as a share of BK sectors. Accommodation & Food/Beverage was the second largest (29% of BK sectors and 28% of total sales) in January. Accommodation & Food/Beverage is down 1 point from January 2017’s 30% share of the BK sectors. Manufacturing came in at a distant 3rd place with only 4% of the BK set.
The Las Vegas MSA’s 12MMA of average weekly earnings (not inflation-adjusted) was up by $2 in February. This growth trend, which began almost 3½ years ago in September 2014, continues. On a YOY basis, the 12MMA was up $30 (3.9%) from February 2017.
When looked at on an inflation-adjusted YOY basis, earnings rose by 1.8% in February 2018 compared to February 2017, reaching $668 (in 2007 dollars). However, when compared to January 2018, real earnings remained nearly the same, growing by just $0.26. Las Vegas’ average weekly real wage remains $83 (11%) below the most recent inflation-adjusted peak of $751 that occurred 10½ years ago in August 2007. The trough occurred in February 2012 at just over $616, so Las Vegas remains much closer to the trough than the peak.
The number of average weekly hours worked in Las Vegas (Clark County), on a 12MMA basis, has been stuck at 33.9 over the past 3 months. Weekly hours have been climbing steadily, albeit slowly. This is the longest pause in growth since December 2016, which marked the last of 6 months with weekly hours stuck at 33.2. On a YOY basis, average weekly hours are up 0.6 hours from February 2017.
In Q4-2017, the U-6 unemployment rate (including discouraged and part-time workers) recorded a 0.6 point drop, a bigger decline than in any of the previous 5 quarters. This suggests business reliance on part-time workers continues to decrease. The 7-year peak of 36.9 hours occurred more than nine years ago in October 2008.
Implication: Despite a decreasing U-6 unemployment rate, many companies continue to depend heavily on part-time workers and independent contractors. For this reason, Nevada’s U-6 rate remains the nation’s 3rd highest at 10.8% as of Q4, 2017. However, a dropping U-6 rate does seem to be benefiting weekly hours worked in 2017 as the chart shows. It remains to be seen if weekly hours can maintain their upward trajectory after this extended 3 month pause.
Gas prices in Las Vegas have been climbing fast over the past month. As of April 2, Las Vegans saw the price of regular unleaded gasoline in the Las Vegas MSA increase by $0.24 (8.6%) from the prior month, resulting in a per gallon price of $3.01. The price of regular unleaded has gone up $0.38, or 14.3%, from a year ago. This is likely to have a dampening effect on other types of resident and business spending.
Gas prices in LA-Long Beach are included in the chart because visitors from the region are a major driver of Las Vegas’ lodging and hospitality industry, specifically, and economy, generally. Rising gas price could put a crimp on tourist spending in Las Vegas this summer.
According to AAA, “Drivers in West Coast states are paying the highest pump prices in the nation: Hawaii ($3.52), California ($3.51), Washington ($3.17), Alaska ($3.13), Oregon ($3.09) and Nevada ($3.01). On the week, all drivers in these states saw an increase in prices at the pump. Arizona (+9 cents) saw the largest leap, while Hawaii (+1 cent) saw the smallest.
At 1.59 million b/d, last week’s total gasoline production rate is nearly 60,000 b/d less than the rate last year at this time. According to the EIA’s latest weekly report, total gasoline inventories in the region declined by 36,000 b/d last week to sit at 32.7 million bbl. However, inventories may decline further with this week’s scheduled planned maintenance at the Phillips 66 Los Angeles Refinery, which can produce up to 147,000 b/d of gasoline.”
A well-known housing market indicator is the employment-to-housing permit ratio, or E-P Ratio. It compares monthly job growth to the number of housing permits issued during the same month. At 1.3 in February 2018, the E-P Ratio for Clark County has not changed over 3 months. Relative to February 2017, the E-P Ratio is down 0.5 points from 1.8.
The general consensus among real estate analysts is that an E-P Ratio between 1.0 and 2.0 indicates a stable market. Clark County’s E-P Ratio has been in this range for more than a year now, since October 2016.
Nevada excise tax revenues generated from marijuana sales through the first 7 months are $34.9 million. The most readily available report by the Nevada Department of Taxation contains retail and wholesale excise taxes. These taxes do not include sales and use taxes paid at point of sales at the dispensaries or the annual licensing fees paid by the industry. The wholesale excise tax is collected at a 15% rate from growers to dispensaries on medicinal- and recreational-use marijuana, while the 10% retail excise tax is charged to only recreational users purchasing marijuana at a dispensary.
According to the Department, tax revenue from the sale of marijuana is expected to reach $120 million during the next 2 years. Collections during that last 7 months indicate that the Department’s forecast is right on track. The major “know/unknown” is if the U.S. Justice Department goes through with its threats of curtailing or putting a halt to the industry’s activities around the country.
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