After an uncommon pause in July, the RCG Employment Index’s 12-month moving average (“12MMA”) saw the usual 0.1-point monthly increase in August and, as expected, is back on the same trajectory we have been seeing since 2011. On a YOY basis, the Index is up 1.2 points from August 2016. It is now just 1.3 points below the November 2006 peak of 100.
The 12MMA of Clark County’s headline unemployment rate dropped 0.1-points to 5.1% in August 2017. The rate is 1.1 points below last August’s 6.2%. It reached its lowest level in October 2006 when it was just 4%. The region is hypothetically at “full employment”.
Last month the 12MMA rate of job growth in the Las Vegas MSA experienced an undesired change, dropping 0.1 points to 3.2% after 7 straight months at 3.3%. In August it fell no further, holding at 3.2% for the month. Job growth at the regional and national levels has been suffering from the same effect: According to the Brookings Institution, the slowdown is mainly due to decreasing demand for unskilled labor.
Various sources often report employment-to-total population ratios, but that metric muddles the true ratio of workers to working-age population, because U.S. society is aging and the share of non-retirees is shrinking. Therefore, we present the employment-to-adult-working-age population ratio. This relates jobs the population cohort that is actually expected to work. It more accurately describes the employment situation in the region.
This chart shows that the region’s employment-to-adult-working-age population ratio for 2016 increased slightly from 2015. The most recent ratio is just short of the 2006 peak. It went as low as .49 during the depths (2010) of the Great Recession.
A strong housing market AND a recovering commercial market are bolstering construction in Las Vegas, leading to more construction jobs. In August 2017 the number of Southern Nevada construction workers rose by 6,342 (12MMA) from August 2016, an 11.7% increase that puts total construction jobs over 60,000. That makes 62 straight months (just over 5 years) and counting of construction job growth.
Construction jobs now represent 6.8% of the region’s job-base, a 0.2-point increase in the industry’s share from last month. August’s jobs are still well below the November 2006 peak of 108,833, when they accounted for 11.4% of all MSA jobs. However, the number of construction jobs was pushed to an artificial high during the real estate bubble. And, we are not likely to see those pre-recession construction job numbers in the foreseeable future. On the bright side, the industry is much more stable today than it was then.
On a 12MMA basis, the number of visitors to Clark County in August fell -0.17% from the previous month. When compared to August 2016, there was -0.3% YOY growth. This is the first time we’ve seen negative YOY visitor growth since April 2010. 2017’s eight-month visitor total of approximately 28.5 million is still just barely higher than 2016’s 28.4 million, with the differential continuing to shrink. Visitor growth has slowed considerably in 2017 with a YOY visitor growth rate average through August of only 0.4%.
The average rate of growth over the same period in 2016 was much better at 3.1%. We believe we have now entered a sustained period of slower but steadier growth. The month of greatest YOY growth since October 2005 was September 2011, when visitor volume grew by 4.5%.
In August, Clark County’s convention attendance (on a 12MMA basis) saw a 0.21% monthly increase, leading to a new high of 540,568 attendees for the Las Vegas MSA. Compared to August 2016, convention attendance was up 3.1%. The previous 12MMA monthly peak attendance of 529,185 was in January 2007.
Convention attendance saw significant gains in 2016 with 10 months of greater than 10% YOY growth. However, YOY growth has been steadily slowing since the recent high in July 2016 of 20.2%. This is primarily due to facility capacity issues controlling the demand growth. 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.
In August 2017, the 12MMA of hotel revenue per available room (RevPAR) in Clark County was $115.57, an increase of $0.17 (0.15%) from the previous month. Compared to August 2016, RevPAR is up $5.56 (5.1%), which continues its streak of YOY growth that began in December 2010. RevPAR is nearing a new high, now representing 97% of the RevPAR 12MMA peak of $119.43, 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 up for the 6th month in a row with an increase of 1.03% from July to $731.2 million in August. YOY growth in August of 4.6% was up (1 point) from the 12-month period ending in July, the biggest YOY gain since September 2007. This makes 31 months straight of positive YOY growth. July’s gaming revenues net of baccarat were nearly 88% of the October 2007 peak of $834.4 million.
The net baccarat revenues are largely comprised of slot revenues, which generally reflect wagering of 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 there has finally been some improvement with the issue of constrained disposable income.
According to Home Builders Research, in August, total (new and resales) Clark County home closings were up 1% from the previous month, surpassing last month’s peak of 4,798 sales and reaching a new high of 4,848 sales (12MMA). On a YOY basis, total home sales were up a considerable 10.1% compared to August 2016. New home sales continue their hot streak with YOY growth of 21.2%, the 7th month in a row that annual growth in new home sales has been over 20%. Existing home sales, which are not nearly as strong, are nonetheless growing steadily with a YOY growth rate of 8.3%.
Per Home Builders Research, the 12MMA median home price (new and resale) in August 2017 was $234,169, an 8.3% gain over August 2016. The peak of $305,333 was recorded over 10 years ago in February 2007. August’s estimate was nearly 77% of the peak price.
The median new home price was up 4.8% from the previous year, reaching a new peak in August of $334,033. The previous peak of $327,066 occurred in February 2007.
The median resale home price was $215,982 in August, an 8.2% increase during the last 12 months. The peak of $286,833 occurred over 10 years ago in April 2007. This means that the current resale price has recovered approximately 75% of its pre-recession peak. By comparison, the median resale home price in the Reno-Sparks MSA was $323,939 (12MMA).
The rate of home appreciation for new and resale homes most recently peaked in March 2016 at 10.2% YOY growth, but was down to 6.4% in December of that year. Since then it has risen steadily and is now back up over 8%, averaging 7.4% for the year through August. The annual peak of 35.8% growth occurred in February 2005.
The 12MMA 30-year fixed rate mortgage in the Western Region increased by 0.05 points to 3.88% in September. The 10-year peak of 6.4% occurred in October 2006. The 30-year fixed rate mortgage should remain relatively low, but will likely go up because of Federal Reserve actions.
The 12MMA Case-Shiller home price index for the Las Vegas MSA reached 156.4 in July 2017, a rise of 6.3% compared to July 2016. The US index in July was 195, an increase of 5.5% for it compared to the previous year. The Las Vegas index peaked at 233.2 in December 2006. The latest index is 67% of the peak. 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 Las Vegas Valley’s 12MMA apartment vacancy rate ticked up by 0.1 points in Q2 2017, though the general trend since 2011 has been down. This quarter was the first increase in vacancy since Q3, 2013. Apartment vacancies are slowly recovering. Over the last 9 years, the apartment vacancy rate peaked at 10.8% in Q2, 2010. It hit its lowest mark of 5.1% in Q1, 2007.
The 10-year treasury rose to its highest levels since the end of July, at 2.33%. Many analysts are forecasting continued escalation to approximately 2.4 or 2.5%, with the Fed bumping prime rates to 4.5% by the end of 2017. On September 20th, the Federal Reserve announced it will begin to unwind its $4.5 trillion balance sheet filled primarily of treasuries and mortgage-backed securities it acquired during quantitative easing. The Fed views inflation running close enough to its 2% target to forge ahead with its rate and balance sheet normalization program. The cuts will happen modestly before gradually increasing in an attempt to avoid drastic changes in the markets.
In reference to equity markets, all four major U.S. equity indices (S&P 500, NASDAQ, Dow Jones, and Russell 2000) ended September with year-to-date gains of at least 9%. They have endured mounting tension with North Korea, a deadly U.S. hurricane season, and escalating political turmoil.
Due to the fear of rising interest rates, CommCap has received a flurry of loan requests by borrowers trying to lock in long term fixed rates.
Despite slowing visitor growth, increased local resident and business spending in Nevada and Clark County continues to fuel rising taxable retail sales. We believe much of this growth is largely due to the volume of construction activity combined with vigorous visitor spending. (Another record high was reached in July with over $3.41 billion in sales, a healthy 4.2% increase from last year. The increase from the previous month was 0.18%. The YOY growth rate for taxable retail sales averages 4.4% through July.
July’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.
Note: It will be interesting to see how adult-use marijuana sales will pan out relative to the taxes it will generate. The first of month of reporting occurred this July. While still small relative to Nevada’s revenue-base, starting next month, we will begin tracking the contribution that these sales is making to the base.
|The Las Vegas MSA’s 12MMA of average weekly earnings (not inflation-adjusted) went up by $3 in August, continuing a streak of growth started nearly 3 years ago in September 2014. On a YOY basis, the 12MMA was up $32 (4.4%) from August 2016.|
On an inflation-adjusted, YOY basis, earnings rose by 2.4% in August 2017 compared to July 2016, reaching $665 (in 2007 dollars). This was an increase of $2 from July. Las Vegas’ average weekly real wage is now $86 (11.5%) below the most recent inflation-adjusted peak of $751 that occurred 10 years ago in August 2007. The trough occurred in February 2012 at just over $616, so Las Vegas is still much closer to the trough than the peak.
The number of average weekly hours worked in Las Vegas (Clark County), on a 12MMA basis, rose by 0.1 points for the second consecutive month, reaching 33.7 in August. Weekly hours had been increasing by just 0.1-points every 2 months since January, so this increasing pace may be a sign that employers are beginning to provide more full-time jobs. On a YOY basis, average weekly hours are up 0.5 hours from August 2016, a good sign considering they were either down or unchanged YOY through all of 2016. In Q2-2017, the U-6 unemployment rate recorded another 0.4 point drop, which is another indicator that business reliance on part-time workers is decreasing. The 7-year peak of 36.9 hours occurred in October 2008.
Implication: Despite decreasing headline and U-6 unemployment rates, many companies continue to depend heavily on part-time workers and independent contractors. For this reason, Nevada’s U-6 unemployment rate (including discouraged and part-time workers) remains the nation’s 3rd highest at 11.5% as of Q2, 2017. However, the decreasing U-6 rate does seem to be having a salutary effect on weekly hours. In 2016, the net gain in weekly hours was 0. Already in 2017 weekly hours have increased 0.5 hours.
As of October 13, Las Vegans are feeling a little relief at the pump with the price of regular unleaded gasoline in the Las Vegas MSA decreasing $0.06 (-2.3%) from the month prior, resulting in a per gallon price of $2.67. The price of regular unleaded has gone up $0.22, or 9.1%, from a year ago.
According to AAA, “Gasoline inventory levels reached a 4-month high, according to EIA’s latest report, growing to 29.3 million bbl. The increase is a surprise given planned maintenance at various refineries and healthy exports in the region that were expected to keep inventory growth low. Additionally, despite dropping from last week, the refinery utilization rate of crude remains high at 88.3 percent in the region. The utilization rate is likely to climb back up, as more refineries return to typical production rates when scheduled maintenance is completed.”
Gross metropolitan product (“GMP”) figures for 2016 were released in the last few weeks and Las Vegas posted a 2.1% gain in inflation-adjusted, or real, GMP. This makes six years in a row of growth. Because it is adjusted for inflation, positive growth in this measure of GMP is always a good sign. Average job growth is also up 2.1%. Both these figures beat their 12-year averages. These results also bode well for 2016’s numbers.
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. The E-P Ratio for Clark County is back up the 0.2 points it lost last month, from 1.4 in July to 1.6 in August on a 12MMA basis. Relative to August 2016 the E-P Ratio is down 0.3 points from 1.9. 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 since October 2016.