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Gaming Guru

Hubble Smith

Economic Indicators Rise, But Slowdown Could Come

7 September 2005

LOUISIANA/NEVADA -- The ripple effect of Hurricane Katrina will probably slow Southern Nevada's economic growth for a quarter or two, a local economist said.

Higher oil prices threaten to hurt the tourism industry, which had shown healthy increases in visitor volume, airport passengers and gaming revenue.

The Southern Nevada Index of Leading Economic Indicators continued on its upward track in August at 132.14, even as the U.S. index of leading indicators turned flat, said Keith Schwer, director of the Center for Business and Economic Research at University of Nevada, Las Vegas.

The indexes tend to follow each other, with the local economy historically lagging behind U.S. business cycles, Schwer said. The recent separation of the indicator series raises a possibility of slower rates of expansion, he said.

"While there are periods when they spread apart, they eventually tend to come back together. That's one point why we believe the rate of growth will slow in the future," Schwer said.

The Southern Nevada Index of Leading Economic Indicators is a six-month forecast from the month of the data (June), based on a net-weighted average of 10 series after adjustments for seasonal variation.

The accompanying Review-Journal chart includes several of the index's categories, along with data such as new residents and employment and housing numbers, updated for the most recent month for which figures are available.

Las Vegas continues to attract nearly 7,000 new residents a month, with 7.6 percent jump in employment from the same month a year ago.

John Restrepo, an economic consultant in Las Vegas and a native of New Orleans, said he expects a wave of casino workers displaced by the closure of Gulf Coast casinos after Katrina to move to Las Vegas, at least for the short term, looking for work in a job market that's considered tight at 4.3 percent unemployment. That could drive up rental housing here.

"I don't think it's going to generally have a negative impact on our economy except for one area, over time, which is the continued rising cost of construction," Restrepo said. "Fixing that city is going to take precedence over building a high-rise in Vegas."

Clark County's taxable sales grew 14.1 percent to $2.82 billion and gaming revenue increased 13.2 percent to $797.2 million, compared with year-ago figures. Visitor volume was up 5.8 percent to 3.68 million and passenger count at McCarran International Airport rose 7.9 percent to nearly 4 million.

Of course, that was before gasoline approached $3 a gallon and Hurricane Katrina disrupted oil refinery production in the Gulf Coast.

"One rule of thumb, as the price of fuel goes up, there's a half percent reduction in gross domestic product for every $10 increase in a barrel of crude oil," Schwer said. "Keep in mind the price of crude is worldwide. The problem everybody points to is refining capacity and distribution."

Any adverse effect from Hurricane Katrina is likely to be regional, he said, though commodities such as building materials are expected to increase in price. That's going to hurt Las Vegas, where contractors have faced 30 percent to 70 percent increases in concrete and steel prices.

Ken Simonson, chief economist of the Associated General Contractors of America, said construction activity through July showed widespread improvement from the first six months of 2004, but the devastation from Hurricane Katrina will have varied effects on construction markets for the rest of this year and into 2006.

"Cement was already in short supply in 32 states and the District of Columbia last month," he said. "The disruption to ocean, barge and rail transport from Katrina, and the loss of power to cement plants in the storm's path, will cut further into cement supplies. At the same time, the urgent need to stabilize and rebuild roads, other infrastructure and buildings will increase demand for cement and other materials."