June Metrics and Trends – Northern Nevada

Our thanks to the folks at the UNR
Center for Business Studies for their
contribution to The Stat Pack’s Northern
Nevada content.


RCG empl index Reno June

The RCG Jobs Index 12-month moving average (“12MMA”) for Reno-Sparks increased to 96.2 in April. This is a 1.96% rise from 94.5 recorded in April 2014. April’s index was the same as March’s and has been generally improving for the last 4 years.

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Job grwth HL unemp reno june

The job growth 12MMA in Reno-Sparks held at 3.1% in April from March. This is a very healthy rate of growth. The 12MMA for the unemployment rate decreased to 7.1% compared to 8.7% in April of 2014. The unemployment rate has been steadily improving for nearly 4 years, while jobs have been growing nearly 3 years.

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construction reno june

Total construction jobs in the Reno-Sparks MSA declined to 11,375 in April from 11,392 in March on a 12MMA basis, but they were up by 7.6% from the 10,575 jobs recorded in April 2014. (Context: Construction jobs in the MSA peaked at 24,042 in August 2006 on a MMA basis.)

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visitor Reno june

April’s 12MMA visitor total increased by 1.3% Y-O-Y to 390,592. However, this visitor count was slightly lower than March’s 12MMA of 391,478. Visitation to Reno-Sparks has not seen the turnaround that visitation to Las Vegas has experienced. The 12MMA peak occurred in May 2004, when 467,904 visitors came to the region. Takeaway:  The Reno-Sparks hospitality industry continues to face challenges.

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gr gaming rev n pct chg reno june

Washoe County 12MMA Y-O-Y gross gaming revenue growth in April (2.2%) represents the fourth consecutive month of improvement and the largest in 14 months, with total revenues reaching $63,444,565. Washoe County’s Y-O-Y gaming revenue growth in April beat Clark County’s 8%.

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taxable retail sales reno june

Much like in Clark County, retail sales in Washoe County have been climbing steadily to $560.2 million, up 7.7% on a 12MMA basis when comparing March 2015 to March 2014. This makes 48 months in a row of rising retail sales on a Y-O-Y basis. As the chart shows, Washoe’s taxable sales growth is beating the state average on a percentage basis.

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MLS reno june
MLS home sales in the Reno-Sparks area, which are mostly comprised of resales, increased to 502 units in April on a 12MMA. The 6-year peak occurred in May 2012 at 507 units. The median price also rose to $257,071 (12MMA). That is a 14.7% jump compared to April 2014. April’s median price is the highest in nearly 7 years. Reno-Sparks’ April median price of MLS sales in the region was 46% higher than the Las Vegas resale average of $176,033.

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housing opp index reno june

The Housing Opportunity Index for the Reno-Sparks MSA plummeted during Q1, 2015 to 55.8 from 68.4 in Q1, 2014 on a moving quarter basis. The U.S. Index also dropped but only from 66 to 63.4 during the same period. Reno-Sparks’ HOI peaked at 85.8 in Q1, 2012. It bottomed out at 17.3 in Q4, 2006 at the peak of the housing crash. The 44-quarter average is 55.5.

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av weekly earnings reno june

The 12MMA average weekly wage (not adjusted for inflation) in the Reno-Sparks MSA reached $755 in April, rising by 9% from $692 in March 2014. Additionally, the inflation-adjusted 12MMA wage of $670 recorded in April represented an increase of nearly 8% over the $621 recorded in March 2014. In April, the Reno-Sparks average weekly real earnings were 7% higher than the Las Vegas average of $626.

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av weekly hrs worked reno june

Average weekly hours worked in the Reno-Sparks labor market are bucking the state and national trends and have sharply turned up in the last 7 months. Weekly hours reached 33.4 in April, up 0.8 hours compared to the 32.5-hour trough (7 year) of August and September 2014 and by 0.3 hours compared to April 2014 on a 12MMA basis.

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N NV page June

According to AAA, as of June 9, the average price per gallon for regular unleaded gasoline in Reno-Sparks plummeted by 20% from $4.00 a year ago to $3.32. It also went down slightly when compared May 9. We expect gases price to stay relatively stable for the summer barring any sudden and/or unforeseen world events.

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To stay abreast of developments in private equity investment in Nevada and elsewhere, check outgrowtheconomy.org.
Nevada is near the top (i.e., bottom) of the list for African-American unemployment.
Great video of the Tesla gigafactory rising from the desert.
EDAWN has released its economic development strategic plan.
Nevada grew from 21st to 10th in the Kauffman Index of startup activity, according to EDAWN.
How big is Las Vegas’s middle class? Turns out, larger than in many other cities.
Nevada voters and other swing states have a very pessimistic economic outlook.
Nevada is thinking about phasing out its foreclosure mediation program.
Self-driving trucks are now being tested in Nevada before their planned implementation on Route 83.
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Got business news?
Email mpequeen@hightoweradvisors.com and we’ll put it in the next issue of The Stat Pack (space permitting).

What Keeps Bank of Nevada CEO John Guedry Up At Night?

This month The Stat Pack is honored to feature a Q&A – including our signature question, What keeps you up at night? – with Bank of Nevada CEO John Guedry.
GuedryTesla aside, how is Nevada really doing in terms of economic development? 
We are seeing pockets of recovery that have been ongoing for more than two years now. Specifically, the resale housing market is getting healthy with a relatively limited inventory of about 3 to 6 months, depending on sub-markets and price points. Jobs on the hospitality side, i.e. gaming and tourism, have been recovering steadily for that same two-year period with the construction industry also showing notable job recovery over the last 3 to 4 quarters. Since these two sectors represented the majority of the job market pre-recession and were by far the hardest hit by the great recession, it is important that they continue to gain momentum through the recovery, which they are starting to do – though we are seeing only approximately 60% of the employment levels in these respective industries compared to pre-recession levels. I have likened the last economic cycle in Nevada to a long fall off a very steep cliff resulting in severe injuries that has led to a long, slow crawl out of a very deep hole. Today the patient hasn’t reached the crest but can see the light above – and the injuries have healed enough to possibly walk the rest of the way out.
Analogies aside, the improving employment market has also pushed CRE values, rent rates and vacancy rates in the right direction over the same two-year period, particularly in the industrial and retail categories – and specifically in the master-planned communities of Summerlin and Green Valley, as well as along the I-215 corridor connecting these two communities. The downtown office market and the Strip retail markets have also improved significantly in the past couple of years.
The banking industry in Southern Nevada has seen an overall more stable economy with some depositors still focused on a flight to safety, keeping their deposits at larger and/or national institutions, which may not be the best spot for them today. Borrowing activity in the construction market is increasing but is still well below peak levels. Commercial/business borrowers are still a little slow to increase debt for inventory, facilities and equipment needs. Overall confidence levels in local, national and global market conditions seems to continue to hold back growth/expansion decisions for many, resulting in a more protracted recovery.

Colonial Plaza Office Center on S. Ft. Apache in Las Vegas

Are you seeing differences between economic development efforts in Northern and Southern Nevada? If so, how so?
Northern Nevada seems to be a bit ahead of Southern Nevada, as organizations like EDAWN and NNDA in the north have been operating longer than the more newly formed LVGEA in Southern Nevada (even though LVGEA has really just picked up where NDA left off and enhanced their mission). I think LVGEA’s transition to its new mission and new organizational structure has created a dip in activity while the organization refocuses its efforts. Also, Northern Nevada made a decision many years ago to diversify as their dependence on gaming became less optimal for their growth prospects, providing them more tools in their bag to rely on than Southern Nevada, which became accustomed to consistent and substantial annual growth in the gaming sector. Finally, the Northern Nevada market is more nimble due to size, thus making it a bit easier to make a meaningful impact to their economic prospects when they are successful in landing a company like Tesla or an expansion plan from a company like Switch. While both of those success stories would make an impact in Southern Nevada, proportionately it would be less impactful.
The expansion of the LVCVA/Convention Center will have a major impact for Southern Nevada, as will the ground breaking of the multi-billion dollar Genting resort and the completion of the $350M events arena by MGM. In short, both economies are heading in the right direction, but Northern Nevada has felt its recovery just a little bit sooner and the change up north is more noticeable due to the scope of the growth compared to the size of the respective markets. LVGEA hitting on all cylinders will be critical to keeping the momentum going in Southern Nevada, especially as it relates to diversification for the long term stability and viability of that growth.
In your experience, what are the primary reasons companies choose to – or choose not to – move to Nevada?
Primary reasons to move here include (but likely are not limited to) the following:  Reasonable tax climate, favorable business climate related to regulations and overall openness for outsiders coming in, value proposition specifically related to facilities (whether owning or leasing), relatively low energy costs compared to neighboring markets, availability of space (in most categories, with the exception of large 400,000 sq. ft.+ industrial space), affordability for owners and employees, opportunity for growth, dry and warm climate, great international market for flights, good and improving ground transportation options including the ability to cost effectively export products due to low outflow costs (i.e., empty trucks and rail cars leaving the region), and good proximity to major markets like Southern CA, Phoenix, Salt Lake City and the Bay area.
Primary reasons not to move to Nevada:  Lack of a trained and educated workforce, water constraints, changing (and therefore unknown) tax environment, concerns about the education system for families, weak higher education system, perception of Las Vegas as “Sin City” (so:  brand perception), poor health care ranking, and lack of economic diversification.
You are the incoming Chair of the Las Vegas Metro Chamber. What would you like to see the LVMCC accomplish in the next two years?
Continue their great work with local, state and national elected leaders to help Nevada achieve our goals of a vastly improved education system and a more diversified economy. Work with our members to make sure we are addressing any issues – from policy to resources, personnel to capital – that could be constraining their success or ability to achieve goals. Make sure the business environment in Nevada is conducive to adding jobs and growing the economy in order to help all businesses benefit from that growth; a rising tide raises all boats.
Financial institutions are spending a great deal more on regulatory and compliance issues these days. How has this had an impact at Bank of Nevada and your ability to serve your customers?
In most instances, better regulatory oversight has strengthened the banking industry including Nevada banks. Stronger capital requirements, better risk management controls, and supportable loan loss reserves based on longer historical trends and more data are among just a few of the material changes that have caused banks focus on stronger balance sheets in order to better serve their markets. That said, anytime the regulatory oversight pendulum swings too far, we wind up with well-intended regulations with unintended consequences – i.e. a situation in which there were too many mortgage loans to unqualified buyers has now swung so far in the other direction that many mortgage lenders have exited the residential mortgage market, leaving a supply shortage.
Are you seeing the lending climate change for small businesses and the real estate industry in Nevada, as well as the other markets in which Western Alliance Bancorporation is involved?
Western Alliance Bankcorporation (WAL) and our other divisions, including Bank of Nevada, did continue to make loans throughout the recession and recovery. That really hasn’t changed. What has changed is that more businesses are now looking to borrow, and more are qualified such that they can repay the loans they are requesting. The last thing any bank wants to do is to provide a borrower with a loan they can’t repay. Unfortunately, during the worst of the recession, many borrowers did not have the revenue or cash flow to repay the loans they may have wanted. Providing a loan in those cases would have compounded the problem that led to the recession in the first place. A more significant recession-related issue was that business owners were not interested in expanding their businesses such that they did not want to increase inventory or receivables, buy equipment, or add facilities or staff – so they did not need to borrow.
It is a change in both of these factors that has led to a recent increase in borrowing activity.  WAL experienced this change sooner in our other markets – such as in CA (Torrey Pines Bank) and AZ (Alliance Bank of Arizona), where demand increased because their economies began to recover a few years ahead of Nevada – resulting in more business and real estate loans, there.
What are your thoughts on the various tax bills that are being discussed in the Legislature? Do you like any of them? If a “hybrid” bill is passed, what should it include — or not include? Do you think the additional budget money proposed by Governor Sandoval is needed? 
Honestly, no one “likes” to pay more in taxes. That said, I am pleased to see that the discussion at the Legislature isn’t only about increasing tax revenue but is also about how many accountability measures will come with the increase as well as how they will be implemented and maintained. I credit the Governor with getting into a discussion of the details, rather than just focusing on, do we or don’t we raise taxes, he has already got most business owners to agree additional revenue is required. Obviously, there are many opinions about the need for more taxes. I’m in the camp that an increase in taxes that creates revenues which is then properly invested can actually improve returns to Nevada businesses and residents alike.
So, with that as a foundation for my subsequent comments, let me say that I do not like the idea of a brand new business tax, i.e. the Business License Fee (BLF) introduced by the Senate. This looks and acts very much like a business margins tax and would divide the business community into 30 distinct industries with different margin calculations and different tax rates – in some cases for good reason but in others, the reasons are not so good. I do understand why a high margin business should pay a higher tax rate than a low margin business, or why a business that has fewer tangible commodities should have a different standard for calculating its margin than a business that has easy-to-identify differences between gross sales and cost of goods sold (like a grocery). So, using different margin calculations and tax rates makes some sense. That said, every business model in every sector has some nuance that will make any tiered structure less equitable and therefore make it more difficult to determine a truly fair formula for all. Also, implementing the BLF will be a labor-intensive, time-consuming collection process for the state, resulting in higher costs to collect and administer the tax than might otherwise be the case.
I also have very serious concerns about any business tax that divides Nevada’s industries into separate camps that must fend for themselves in subsequent legislative sessions when more revenue is being sought. I witnessed this issue first-hand when in 2003 the new Modified Business Tax (MBT) was implemented and Financial Institutions were singled out to pay more than three times the tax rate of all other Nevada industries, based on payroll costs plus a franchise fee that no other industry had to pay. Since we were singled out in a way no other industry was, we didn’t get much support from the business community despite my insistence at the time that once the Pandora’s box was opened, other industries would eventually see their rate go up as well. Sure enough, six years later everyone else in the state saw their MBT rate jump from .67% to 1.17%. So, I do not favor a tax that makes it easier for the Legislature to single out an industry whenever more revenue is desired, which seems to be always.
So… my long-winded answer is, if we are not going to look at a broader-based tax that is spread out sufficiently, such that it reduces the impact on a smaller, select group of taxpayers – like a broader tax on services, which would also allow for a lower sales tax rate and would thus make us more competitive with neighboring states – then I would suggest not creating a whole new tax and just looking at the minimum tax increase needed to achieve our objectives in education and to appropriately fund safety-net services like mental health, i.e. increasing the existing MBT (i.e., the Assembly’s bill) to the lowest possible point.
I do want to caution that we should not be having tax discussions without, in the same breath, discussing both accountability and spending controls in order to ensure that these are not tax dollars wasted but rather tax dollars invested to truly improve our K-12 and higher education system, as well as vocational training for adults so we can meet the more diverse employment training needs for our state. In the past, we have increased education spending with few meaningful results. We should tie spending to results and hold those receiving the funds accountable. I know education reform and accountable spending is a centerpiece of the governor’s plan, and I applaud the governor and legislators for having and continuing that discussion – but we need to be sure we take it to the finish line along with any tax increases that may be approved.
Long term, I hope we look at the portions of state and local government tax structures that are not fair, transparent and/or beneficial to all Nevadans and make the necessary changes, even if those aren’t politically the most popular decisions. I also favor any group that wants to offer a revenue alternative that may be more feasible to administer, such as gaming and tourism businesses possibly agreeing to a flat licensing fee in lieu of a percentage increase in payroll taxes (i.e., MBT). This seems better than creating a new taxation structure that will impart a tax on industries that do not favor the make-up, never mind the rates.
And finally…  What keeps you up at night?
Literally, what keeps me up at night is my twin four-year old grandsons who live with us. Figuratively speaking, it is those things beyond our control. The economy, or a terrorist attack, or some foreign country harboring computer hacking rings whose sole purpose in life to bring down or disrupt our business. The traditional concerns are less significant, as I am fortunate to be surrounded by very talented colleagues working for a business brand that has developed a strong reputation of service to our clients – and great clients who have been loyal to us by sticking with us through the worst of times.

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John Guedry has over 27 years of experience in financial services and related industries in Nevada. Prior to joining Bank of Nevada, he was CEO and President of Business Bank of Nevada until it was purchased by City National Bank in 2007, where he remained as Executive Vice President before joining CB Richard Ellis as a Managing Partner. Active in a number of civic and community endeavors, Guedry serves as a board member of Opportunity Village, the Public Education Foundation, NAIOP, Las Vegas Bowl and Women’s Development Center. He is also a past chairman of the Nevada Bankers Association and Leadership Las Vegas Council for the Las Vegas Chamber of Commerce. A native of New Orleans, Mr. Guedry moved to Las Vegas with his family in 1974. He graduated from University of Nevada, Las Vegas, in 1982 with a bachelor’s degree in business management. 

Water Crisis in the Southwest U.S.

Earlier in April, Gov. Brian Sandoval stood on the shores of a shrinking Washoe County lake and signed an executive order creating the Nevada Drought Forum. The group is comprised of water experts and officials from around the state; it will study Nevada’s ongoing drought and recommend state policies. Though not as badly off as California, where Gov. Jerry Brown has ordered a 25 percent reduction in water use, Nevada is the driest state in the nation—and is getting drier with each passing year.
Washoe Lake has shrunk from about 8 square miles to less than a quarter acre. Lake Tahoe dropped below its natural rim last fall. Lake Meade has dropped more than 120 feet since 2000. None of this is good news. Happily, due to drought restrictions and water-efficiency programs, Southern Nevada’s annual water consumption decreased by more than 32 billion gallons between 2002 and 2013, despite a population increase of nearly 500,000 during that same time span.
The challenge of water scarcity in Nevada and the nation has both economic and political ramifications. Water shortages are already straining relationships between states and portions of states, and industries that use a lot of water are coming under fire in headlines and news reports. For agriculture, extended drought is disastrous; scarce water can threaten the viability of billions of dollars worth of crops. The corresponding potential loss of jobs in agriculture and other industries heavily reliant on water is staggering. Additionally, meat prices – the production of which accounts for approximately 30% of U.S. water use – are directly tied to water supply.
If good policy is to be implemented, it is important for the facts to prevail and panic to be kept to a minimum. Here are a few realities:

  • Per capita rates of U.S. water use are comparatively high. Domestic water use is approximately 100 gallons per person per day compared to 37 gallons in the United Kingdom and 32 gallons in Germany.
  • The net consumptive water use in Southern Nevada in 2014 was 118 GPCD. (This number includes all customer sectors but refers only to the portion of water that is consumptively used since direct and indirect reuse allows the water to be used more than once. Net GPCD is more representative of Southern Nevada’s water footprint on the Colorado River.)
  • On average, 70% of U.S. water use occurs indoors, with the bathroom being the biggest consumer, followed by the kitchen.

LakeMeadJuly2014How can these facts help us shape wise water policy?

First, conservation efforts can make a big difference. Reducing U.S. per capita water use by even 25% – never mind by two-thirds, which would bring us in line with other developed countries like the UK – would make a tremendous impact. Second, we can no longer rely on traditional supply-related solutions like building dams and reservoirs, diverting rivers, and drilling wells. Reallocation can play a role, but many long-standing legal agreements and management norms along with scarcity limit the trading of water. Third, we have to acknowledge that in too many places in the U.S., water pricing is based neither on the actual cost of providing water nor on its relative scarcity in a geographical area. Low costs have led to elevated use and have also limited the money available for provider-driven conservation efforts and investment in new water technology and infrastructure. Prices need to come up while being balanced with other economic considerations.
In summary, many of the economic mechanisms that are typically used to allocate a scarce resource—such as trading, pricing, and investment in technology—are largely absent from our nation’s water markets. It is time for that to change. We can’t control the weather, but we can to some degree mitigate water shortages and foster sustainable systems. Pragmatic regulations that encourage or require more efficient use of water combined with incentives for technology innovation can also position our economy to handle the demands of the growing imbalance between water supply and demand.