From an uptick in construction jobs and new home sales to the growth of taxable sales to a bump in average weekly earnings, the Las Vegas MSA is firing on (nearly) all cylinders. If you missed it last month, please note that our newest economic chart — a breakdown of Clark County’s “better known” (“BK”) taxable sales activity — shows which industries/sectors are generating the most revenue.
In May 2018 the RCG Employment Index’s 12-month moving average (“12MMA”) ticked up 0.1 points to 98.7, taking a step it had not made for 4 straight months and impelled by May’s impressive Las Vegas MSA job numbers. On a YOY basis the Index is up 0.5 points from April 2017. The Index is now just 1.3 points below the November 2006 peak of 100.
The 12MMA of Clark County’s headline unemployment rate was 5.1% in May, a drop of 0.1 points after 4 months straight of a stagnant unemployment rate. The unemployment rate is 0.5 points below last May’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.” Strong federal job numbers had foreshadowed May’s decline in unemployment for the Las Vegas MSA.
In May the 12MMA rate of job growth in the Las Vegas MSA held at 2.6% for the 3rd consecutive month. The job growth rate has been on a downward trajectory since 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. However, the economy continues to strengthen, performing better than some analysts had predicted. While President Trump’s economic policy of deregulation and tax cuts, and his willingness to add to the deficit, may be sustaining the strength of national job growth in the short-term, there are consequences looming down the road. Also, it will take some time to see the full impact of the Administration’s threatened tariffs.
Construction in the Las Vegas MSA continues to be boosted by a strong housing market and improving commercial markets. In May 2018 the number of Southern Nevada construction workers rose by 4,917 (12MMA) from May 2017, an 8.7% increase. This was smaller than the previous month’s YOY increase of 9.3%. May’s gains put total construction jobs at 61,508. That makes 71 straight months (nearly 6 years) of construction job growth. Donald Trump’s decision to put tariffs on metals from the E.U., Canada and Mexico and industrial equipment from China, are likely to have an impact on Las Vegas’ construction industry.
In May 2018, construction jobs represented 6.2% of the region’s job-base, a drop of 0.4 points from the previous month and suggesting a construction worker shortage considering how much development is occurring in the region. During the real estate bubble of 2000-2007, construction jobs accounted for as much as an extraordinary 11.4% of all MSA jobs when construction jobs peaked at 108,833 in November 2006.
In April 2018 the Las Vegas MSA’s 12-month visitor count (annualized) was 42 million. The number of visitors to Clark County rose in April for the first time in 11 months, though the increase was a miniscule 0.1%. On a YOY basis, this was the 9th month in a row visitation has declined. Visitation is April 2018 was down -1.9% when compared to April 2017. 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 through April of 2018 the visitor total is 13.8 million. That is lower than both 2016 (14.1 million) and 2017 (14.0 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 4 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 April Clark County’s annualized convention attendance saw a 1.1% increase from the previous month, putting the annualized total at nearly 6.6 million. This increase does not quite make up for the previous month’s drop of 1.6%. However, when compared to April of last year, convention attendance is still up 5.7%. 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. Through all of 2017 the YOY rate of growth had fallen drastically to 3.9%. During the first 4 months of 2018 attendance grew by an average 5.2% 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 up 0.88% to 739.3 million in April. The streak of positive YOY growth was extended to 39 months straight with an increase of 2.6% from April 2017. April’s gaming revenues net of baccarat were nearly 89% 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.
Of the 5,044 total home sales in April, 4,224 were resales of existing homes, while 820 were new home sales. According to Home Builders Research, in April, total (new and resales) Clark County home closings on a 12MMA were up 0.96% from the previous month. On a YOY basis total home sales were 7.5% higher than the previous year.
New home sales saw a YOY growth rate of 14.8% in April, up a full percentage-point from March. Existing home sales are growing steadily with a YOY growth rate in April of 6.2%, which is up 0.7 percentage-points from the month prior.
Per Home Builders Research, April’s 12MMA median home price (new and resale) was $256,307, a 1.31% gain over the previous month. Compared to April 2017, the price is up 12.7%, 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. April’s estimate is now nearly 84% of the peak price.
The median new home price was up 8.0% from the previous year, reaching a new peak in April of $353,822. The previous peak of $327,066 occurred in February 2007.
The median resale home price was $237,117 in April, a 13.3% increase during the last 12 months. The peak of $286,833 occurred 11 years ago in April 2007. This means that the current resale price has now recovered almost 83% of its pre-recession peak. By comparison, the median resale home price in the Reno-Sparks MSA was over $115,000 higher at $354,540 (12MMA) in April 2018. Reno-Sparks MSA’s median home price (12MMA) also grew 13.3% YOY.
The rate of home appreciation for new and resale homes continued its rising trend in April. 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. Through the first four months of 2018 the YOY growth rate average is 12.1%. The annual peak of 35.8% growth occurred in February 2005.
The 12MMA 30-year fixed rate mortgage in the Western Region continues to climb. Another small increase in May of 0.05 puts the rate at 4.10% (12MMA). This was the 4th increase in a row after 2 straight dips, but the changes have not been drastic with the rate fluctuating between 3.97% and 4.10% over the last 9 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 167.3 in March 2018, a rise of 9.4% compared to March 2017. The Las Vegas index has risen for 67 straight months while its YOY growth rate has been growing steadily since March 2017. The US index in March was again up 1.1 points, an increase of 6.1% compared to the previous year that puts the national index at 203.1. 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 72% 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 Housing Opportunity Index (“HOI”) for the Las Vegas MSA fell for the 5th straight quarter, this time by 1.6 points, decreasing to 60.5 points in Q1 of 2018 on a 4-quarter moving average basis. Over 5 quarters the Las Vegas HOI has dropped by a total of 7.2 points. 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 modest increase, growing from 59.4 in Q4, 2017 to 59.7 in Q1, 2018. 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.
By the end of May, two of the three of equity indices re-entered positive territory for 2018. The DJIA, NASDAQ and S&P500 year-to-date have returned approximately -0.2%, 9.45%, and 2.35%, respectively. The persisting upward trend in the equity market appears to stem from a combination of earnings momentum paired with a cautious optimism regarding the future of the U.S. economy. Within the fixed income market, the 10-year U.S. Treasury and USD Swap rates accelerated to the 3.0% threshold and quickly fell back to less than 2.80%. The optimistic economic views are tempered by the constant rumble of trade conflict keeping investors on edge. In the final week of May, President Trump imposed steel and aluminum tariffs on Canada, Mexico, and the E.U. The expectation of retaliatory tariffs will potentially have long term effects on trade and the markets.
May was a reminder of the unpredictable nature of interest rates and fueled many commercial real estate investors to take action by quickly locking in rates at the current lower levels.
Taxable retail sales continue to rise in Clark County; however, March’s YOY growth of 3.1% was the lowest since September 2011. Since reaching 5.0% YOY growth in May 2017, the YOY growth rate has been steadily declining. Taxable retail sales grew 0.22% when compared to last month. 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 March with just under $3.49 billion in sales on a 12MMA.
The consistent growth of taxable sales has given the local and state government more money to work with. The strength of the national economy and its local and regional markets are key to this improvement. Growing regional and national economies have driven Southern Nevada’s growth, benefiting all of its sectors. These larger economies are the primary drivers of visitors and convention attendance to Las Vegas, which is ultimately reflected in tourism spending in the region. We may now be witnessing the long-term trend rate for sales of around 3% per year.
We continue for a 3rd month the introduction of a new chart for Stat Pack and have made 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 March 2018, Retail made up 56.1% of taxable sales of the BK sectors and 52.7% of total sales. Compared to March 2017, Retail was down 1 percentage-point as a share of BK sectors. Accommodation & Food/Beverage, an important sector for Clark County, was the second largest (27.8% of BK sectors and 26.1% of total sales) in March. The Accommodation & Food/Beverage industry is down 1.2 points from March 2017’s 29.0% share of the BK group. Manufacturing came in at a distant 3rd place with 4.6% of the BK set, with Real Estate not far behind at 4.0%.
The Las Vegas MSA’s 12MMA of average weekly earnings (not inflation-adjusted) was up by $3 for the 2nd month in a row, reaching $790 in May. This growth trend began over 3 years ago in September 2014. On a YOY basis, the 12MMA was up $30 (3.9%) from May 2017.
When looked at on an inflation-adjusted basis, earnings grew slightly in May from the month prior, increasing by $1 to $670 (in 2007 dollars). YOY real earnings rose by 1.7% ($11) in May 2018 compared to May 2017. Las Vegas’ average weekly real wage is now $81 (11%) below the most recent inflation-adjusted peak of $751 that occurred close to 11 years ago in August 2007. The trough occurred in February 2012 at just over $616, so Las Vegas remains closer to the trough than the peak.
The number of average weekly hours worked in Las Vegas (Clark County) on a 12MMA dropped to 33.9 in May 2018, erasing the 0.1 point gain made the previous month. This is the first decline since March 2016. Weekly hours had been plodding upward since June 2016. On a YOY basis, average weekly hours are up 0.4 hours from May 2017.
In Q1, 2018, the U-6 unemployment rate (including discouraged and part-time workers) recorded a 0.4-point drop. While this should suggest that business reliance on part-time workers continues to decrease, it very well might be that many of the new jobs being created are for part-time work.
Implication: Despite a 0.4 point-decrease in the U-6 unemployment rate in Q1, many companies continue to depend heavily on part-time workers and independent contractors. Despite what feels like a thriving economy and better than expected job numbers, employers may still feel reluctant to bring new employees in full-time, instead easing them into the company on a part-time basis. There is also the growth of the “gig economy” and widening automation. As a partial consequence, Nevada’s U-6 rate remains the nation’s 3rd highest at 10.4% as of Q1, 2018.
While the price of gas in Las Vegas was again up from a month ago, it appears to have topped out at the end of May and is stabilizing. As of June 8, the price of regular unleaded gasoline in the Las Vegas MSA was $3.32, which is still $0.07 (2.3%) higher than a month ago. Compared to last year, the price of unleaded is up $0.65. In last month’s analysis, the price had jumped by $0.27 (9.2%) in a month.
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, “Nationally consumers are spending $69 more a month to fill-up compared to last summer. Gasoline expenses are accounting, on average, for seven percent of an American’s 2018 annual income, a one and half percent increase since summer of 2017. With strong summer consumer gasoline demand expected in the months ahead, AAA says motorists can expect little relief at the pump with the national gas price average ranging between $2.85 – $3.05 through Labor Day.
Pump prices in the West Coast region are among the highest in the country, all topping out above $3.00 per gallon: California ($3.72); Hawaii ($3.71); Washington ($3.46); Alaska ($3.43); Oregon (3.34); Nevada ($3.33); and Arizona ($3.07). On the week, prices continue to mostly decline in the region by a penny or two. However, Arizona (+1 cent) and Alaska (+2 cents) saw increases, while Oregon (-2 cents) saw the largest decrease in the region.
According to EIA data for the week ending on June 1, inventories of gasoline fell by 200,000 bbl to reach 31.1 million bbl. When compared to a year ago, levels are still up more than 3 million bbl and could contribute to price stabilization in coming weeks.”
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 last month’s 0.1 point drop, the E-P Ratio for Clark County popped back up 0.4 points in April. Relative to April 2017, the E-P Ratio is up just 0.1 points from 1.4.
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 9 months are nearly $49 million, with the most recent recorded month, March 2018, seeing a considerable spike in revenue of more than $1.1 million from the previous month. March brought in about $7.1 million in combined retail and wholesale taxes, compared to $5.9 million in February. 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 9 months indicate that the Department’s forecast is right on track. Another boost for Nevada’s marijuana industry may come if President Trump follows through with his recent suggestion that he is open to legalizing the drug at the federal level.