Southern Nevada economy recovering, economists say

It’s no secret what’s on the minds of millions of Americans right now: inflation.

And Mary Daly, president and CEO of the Federal Reserve Bank of San Francisco, is certainly no exception.

“I’m busy thinking about three things: inflation, inflation and inflation,” Daly said. “The reason I’m thinking about inflation is because ultimately this is a regressive tax that burdens those who are least able to manage it. It also makes businesses uncertain about how to plan for their future, and it makes consumers — even if they’re getting wage increases — not certain that they’ll be able to make ends meet down the road.”

Southern Nevada residents and businesses haven’t been immune to the effects of soaring gas, food, housing and supply costs. The impact on the local economy and beyond was discussed during the UNLV’s Center for Business and Economic Research’s Spring Outlook event.

It was held in-person for the first time in two years at the Thomas & Mack Center. Speakers included Daly, Jamie Woodwell, vice president in the Research and Economics Group at Mortgage Bankers Association, and Douglas Duncan, Fannie Mae’s senior vice president and chief economist.

Andrew Woods, director of CBER, said it’s been an interesting two years, but he’s confident Southern Nevada’s economy will soon recover.

“It feels in 24 months that the world is completely different in Vegas,” he said. “We’re used to change. We’re constantly thinking of new ideas. We know how to pick ourselves up when we get knocked down and keep on moving forward.”

‘A rock and a hard place’

But high inflation is posing a threat to Southern Nevada’s — and the U.S. — economy and labor market.

The country is facing the highest inflation in four decades, after the Labor Department reported last week that its consumer price index rose 8.5 percent in March from 12 months earlier.

The Federal Reserve made clear that it plans an aggressive approach toward lowering inflation this year by raising interest rates several times, including last month’s quarter percentage point increase. If the central bank raises interest rates too much, there’s a risk of pushing the country into a recession, economists say, which would then cause the unemployment rate to increase.

“I think the Fed is between a rock and a hard place,” CBER Director of Research Stephen Miller said. “And the rock is the inflation rate they’ve got to address … but the hard place is how do you get there and how do you get there without having a recession. I think the options are very narrow.”

Daly said in her speech that a strong labor market “leaves no doubt that further policy tightening is appropriate,” and the Federal Reserve should raise interest rates to neutral, citing forecasters seeing that at 2.5 percent.

“I see an expeditious march to neutral by the end of the year as the prudent path,” she said.

The central bank kept rates at nearly zero the last two years, but Daly told the Review-Journal after her speech that with the U.S. unemployment rate so low — at 3.6 percent — it’s appropriate to now raise rates. And this means Nevada could also handle it, even though it’s unemployment rate of a seasonally adjusted 5 percent is much higher than the national rate.

Southern Nevada outlook

CBER projects that Southern Nevada’s economy and tourism sector will recover this year and into 2023.

But it doesn’t anticipate yearly visitor volume numbers to return to pre-pandemic levels until after 2024. The latest estimates from the Las Vegas Convention and Visitors Authority found nearly 2.62 million people visited Southern Nevada in February, a nearly 70 percent year-over-year improvement but 18 percent lower than February 2020.

CBER also forecasts that total employment in Southern Nevada will increase by 5.3 percent this year and rise 4.4 percent in 2023. The unemployment rate is predicted to fall this year by 1.5 percent and drop again in 2023 by 0.6 percent.

Woods noted the economy recovered 93 percent of its pre-pandemic job totals, but 24,500 jobs are expected to never return post-pandemic.

That’s because the labor market is changing, according to Miller.

“We do see employment continuing to grow, but the structure of that employment is changing and more people are going into retail and also trade,” Miller said. “And leisure and hospitality is still lagging a bit. We don’t foresee it going back completely to where we were before the pandemic. There’s going to be a new structure in the labor market.”

Daly said she was thrilled to see Las Vegas coming back. She was able to meet with business and civic leaders including those in Historic Westside and found everyone enthusiastic about the city’s recovery.

“Nevada is on track to come back down,” she said, noting more people are traveling and there hasn’t been another spike in COVID-19 cases. “We’re trying to balance the entire economy. We can’t make everything exactly the same for every city or every state, but we can ask, ‘Are the factors in place to help those cities and states recover? I would say the factors are in place now.”

Contact Subrina Hudson at shudson@reviewjournal.com. Follow @SubrinaH on Twitter.