Construction in the Las Vegas MSA continues to see strong numbers, thanks to a vibrant housing market and improving commercial markets. In March 2018 the number of Southern Nevada construction workers rose by 4,942 (12-month moving average/MMA) from March 2017, an 8.9 percent increase. March’s gains put total Southern Nevada construction jobs at 60,650 and ad mark 69 straight months (nearly 6 years) of construction job growth.
Read on for the rest of the numbers.
In March 2018 the RCG Employment Index’s 12-month moving average (“12MMA”) remained at 98.6 for the 3rd moth in a row. On a YOY basis the Index is up 0.5 points from March 2017. The YOY difference has fallen steadily from a recent high of 1.0 in April 2017. The Index is 1.4 points below the November 2006 peak of 100.
The 12MMA of Clark County’s headline unemployment rate was 5.2% in March, making this the 3rd month in a row that the rate has remained unchanged. The unemployment rate is 0.5 points below last March’s 5.7%. 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.”
The 12MMA rate of job growth in the Las Vegas MSA fell 0.1 point for the 3rd consecutive month reaching 2.6% in March 2018. This continues the downward trajectory initiated 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.
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 to 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 2017 increased slightly after a stagnant year in 2016. While the most recent ratio is up significantly from the 0.43 seen during the depths (2010) of the Great Recession, it is still well below the pre-recession peak in 2006 of nearly 0.49.
The U-3 unemployment rate, or headline rate, for Nevada, after dropping 0.2 points in Q4, ticked back up by 0.1 points in Q1 2018. The U-3 rate is now 0.5 points above the average rate for 2007 (4.6%), the year the Great Recession hit. Despite the small rise in the U-3 rate, the U-6 rate, which measures underemployment, had a 0.4-point decline from 10.8 to 10.4.
In terms of the U-3 rate, Nevada fell behind several states and now has the 5th highest headline rate in the nation. While the U-6 rate saw welcome improvement, Nevada still holds the 3rd highest rate in the country, beating only New Mexico and Alaska. Nevada businesses maintain a significant reliance on part-time workers.
Construction in the Las Vegas MSA continues to be boosted by a strong housing market and improving commercial markets. In March 2018 the number of Southern Nevada construction workers rose by 4,942 (12MMA) from March 2017, an 8.9% increase, just 0.1 points lower than the YOY growth rate for the previous month. March’s gains put total construction jobs at 60,650. That makes 69 straight months (nearly 6 years) of construction job growth. While we have not heard much recently on Donald Trump’s idea to put tariffs on steel and aluminum, taxes on these imports could impact 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 be seen again for foreseeable future.
In March 2018 the Las Vegas MSA’s 12-month visitor count (annualized) was 42 million. This is down -1.9% from 42.8 million during the 12-month period ending in March 2017. The number of visitors to Clark County fell in March for the 10th month in a row, this time by -0.9%. This is the 8th month in a row YOY visitation has declined. We believe that the primary reason for the slowdown is limited room capacity.
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 3 months of 2018 the visitor total is 10.3 million. That is lower than both 2016 (10.5 million) and 2017 (10.4 million) over the same time frame. Visitor growth slowed considerably in 2017 with a YOY visitor growth rate average through December of -0.1%. Over the first 3 months of 2018 the YOY growth rate is a disappointing -1.9%. The average rate of growth over 2016 was much better at 2.7%.
In March, Clark County’s annualized convention attendance saw a -1.6% decline from the previous month, putting the annualized total at nearly 6.5 million. This decrease wipes out the previous month’s gain of 1.1% and means 2 out of the first 3 recorded months of 2018 have seen negative monthly growth. However, when compared to March 2017, convention attendance is still up 3.2%. The annualized peak of 6.65 million convention attendees was in December 2017.
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 3 months of 2018 attendance grew by 5.0% YOY. 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.
On a 12MMA basis gaming revenue net of baccarat was down -0.32% to 732.9 million in March. However, YOY growth continues in March at 2.2%, a decline of 1.1 points from the year period ending in February 2018. This makes 38 months straight of positive YOY growth. However, the YOY growth rate has declined for 3 straight months. February’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 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 March, total (new and resales) Clark County home closings on a 12MMA were up 0.8% from the previous month. On a YOY basis total home sales are still well above the previous year by 6.7%.
New home sales saw a YOY growth rate of 13.8% in March, down just 0.2 percentage-points from February. Existing home sales are growing steadily with a YOY growth rate in March of 5.5%, which is down 0.6 percentage-points from the month prior.
Per Home Builders Research, March’s 12MMA median home price (new and resale) was $252,997, a 1.19% gain over the previous month. Compared to March 2017, the price is up 12.2%, 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 over 11 years ago in February 2007. March’s estimate is nearly 83% of the peak price.
The median new home price was up 7.3% from the previous year, reaching a new peak in March of $350,663. The previous peak of $327,066 occurred in February 2007.
The median resale home price was $234,117 in March, a 12.9% increase during the last 12 months. This was the biggest YOY jump 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 almost 82% of its pre-recession peak. By comparison, the median resale home price in the Reno-Sparks MSA was over $115,000 higher at $350,365 (12MMA) in March 2018. Reno-Sparks MSA’s median home price (12MMA) is growing at 12.9% YOY.
The rate of home appreciation for new and resale homes continued its rising trend in March. 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 3 month YOY growth rate average for 2018 is 11.9%. The annual peak of 35.8% growth occurred in February 2005.
The 12MMA 30-year fixed rate mortgage in the Western Region saw another small increase in April growing 0.05 points to 4.05% (12MMA). This was the 3rd increase in a row after 2 straight dips, but the changes have been miniscule with the rate fluctuating between 3.97% and 4.05% over the last 8 months. The 10-year peak of 6.4% happened 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 165.7 in February 2018, a rise of 8.9% compared to February 2017. The Las Vegas index has risen for 66 straight months while its YOY growth rate has been growing steadily since March 2017. The US index in February was up 1.1, reaching 202.0, an increase of 6.1% compared to the previous year. Both indexes have been on the rise since 2012.
The Las Vegas index peaked at 233.2 in December 2006. The latest LV index is 71% 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 bumped up to 7.7% in Q1 2018. The general trend since 2011 has been down, though apartment vacancy has fluctuated between 7.5% and 7.7% since Q4 2016. The recovery in apartment vacancy has been slow. Over the last 9 years, the apartment vacancy rate peaked at 10.8% in Q2, 2010. It hit its lowest mark of 5.1% 11 years ago in Q1, 2007.
The 10-year U.S. Treasury moved slightly lower during March, finishing the month down 3 basis points from February. The 30-Day LIBOR did not track with the Treasury, increasing 21 basis points to 1.88%. The Fed increased the funds rate by 0.25 points on March 21st. This is the first rate hike under the new chair, Jerome Powell, who has been in office since February. At the March meeting, the Fed hinted it would favor a more aggressive pace to keep the economy moving forward in the years to come. Additionally, a $1.3 trillion spending bill was passed by both the House and Senate, funding the government through September. The omnibus bill includes numerous non-spending policy provisions, as well as those affecting revenue.
Rising interest rates and the rumors of aggressive future Fed rate hikes are among the most common concerns for commercial real estate investors interested in competitive financing.
Local resident and business spending in Nevada and Clark County continues to be reflected in rising taxable retail sales. Since September 2017 the MOM growth rate has been rising steadily, while the YOY growth rate has remained relatively flat over the same period. We believe much of the absolute growth in taxable sales is due to healthy visitor spending numbers and strong construction activity. Another record high was reached in February with just over $3.48 billion in sales on a 12MMA, a 3.8% rise from last year.
February’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 state of the 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. However, with visitor and convention growth experiencing declines, we may see this impact the growth of taxable retail sales.
We continue for a second month the introduction of a new chart for Stat Pack and are making it a permanent addition to this report of notable economic indicators. It displays Clark County taxable sales generated in a selected sample of what we are calling the “better known” (“BK”) activities. We hope this will give readers an insight into the level of economic activity in familiar industries/sectors. Some of these sectors are not necessarily large generators of sales taxes, but we think readers will find them interesting.
In February 2018, Retail made up 57.4% of taxable sales of the BK sectors and 54.4% of total sales. Compared to February 2017, Retail was up 0.8 percentage-points as a share of BK sectors. Accommodation & Food/Beverage, an important sector for Clark County, was the second largest (27.4% of BK sectors and 26% of total sales) in February. Accommodation & Food/Beverage industry is down 1.3 point from February 2017’s 28.7% share of the BK group. Manufacturing came in at a distant 3rd place with only 4.5% of the BK set, up from 3.9% last year.
The Las Vegas MSA’s 12MMA of average weekly earnings (not inflation-adjusted) was up by $2 in March to $784. This growth trend, which began 3½ years ago in September 2014, continues. On a YOY basis, the 12MMA was up $28 (3.8%) from March 2017.
When looked at on an inflation-adjusted YOY basis, earnings rose by 1.7% ($11) in March 2018 compared to March 2017, reaching $669 (in 2007 dollars). However, when compared to February 2018, real earnings remained nearly the same, growing by just $0.76. Las Vegas’ average weekly real wage is now $82 (11%) below the most recent inflation-adjusted peak of $751 that occurred more than 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.
After 3 straight months stuck at 33.9, the number of average weekly hours worked in Las Vegas (Clark County) on a 12MMA basis finally saw an increase, albeit a small one. Weekly hours reached 34 in March 2018. Weekly hours have been climbing slow and steady since June 2016. On a YOY basis, average weekly hours are up 0.6 hours from March 2017.
In Q1-2018, the U-6 unemployment rate (including discouraged and part-time workers) recorded a 0.4 point drop. This suggests business reliance on part-time workers continues to decrease, which is an important factor that contributes to improving average weekly hours. The 7-year peak of 36.9 hours occurred more than 9 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 10.4% as of Q1, 2018. However, a dropping U-6 rate does seem to be benefiting weekly hours worked through 2017 and into 2018 as the chart shows.
Gas prices in Las Vegas have been climbing fast over the past 3 months. As of April 30, Las Vegans saw the price of regular unleaded gasoline in the Las Vegas MSA increase by $0.27 (9.2%) from the prior month, resulting in a per gallon price of $3.23. The price of regular unleaded has gone up $0.53, or 20%, 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 prices could have a deleterious effect on tourist spending in Las Vegas this summer.
According to AAA, “Pump prices in the West Coast region are among the highest in the nation: Hawaii ($3.61), California ($3.61), Washington ($3.29), Alaska ($3.25), Nevada ($3.23) and Oregon ($3.19). On the week, prices in the region are mostly up; with Nevada (+7 cents) leading the way and Alaska (+2 cents) seeing the smallest gain.
When looking at year-on-year increases, California (+62 cents) tops the list of all states in the country, followed by Arizona (+55 cents), Hawaii (+54 cents), Nevada (+52 cents), Oregon (+43 cents), Washington (+38 cents) and Alaska (+32 cents).
For the fifth consecutive week, gasoline stocks in the region have fallen. At 29.6 million bbl for the week ending on April 20, inventories in the region are at their lowest point since November 2017. Although stocks are below the level they were at last year, they are still higher than the five year average for the region.”
Electric meter hookups’ 12MMA in February 2018 reached 812,694. Total hookups were up 1.8% from February 2017. The YOY growth rate has been a consistent 1.8% for 5 months straight. Over the last 29 months the annual growth rate for electric meter hookups has slowly fluctuated between 1.7% and 1.9%. This hints at stable population and business growth, and household formations in the Valley. The annual peak growth rate occurred March 1990 at 10.5%.
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. After 3 months at 1.3, the E-P Ratio for Clark County experienced a 0.1-point drop to 1.2 in March 2018. Relative to March 2017, the E-P Ratio is down 0.8 points from 2.
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 nearly 1 ½ years, since October 2016.
Nevada excise tax revenues generated from marijuana sales through the first 8 months are $41.9 million, with the most recent recorded month, February 2018, generating the most tax revenue since legalization for recreational use in July 2017. 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 8 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.