Economy Plays Catch-Up Into 2022 as Recovery Remains Lopsided

Although Nevada’s economy will fully recuperate by mid-2022, a major split is noticeable in the pace of recovery between the northern region versus the southern region where a large concentration of gaming, leisure, and hospitality-related businesses are navigating the fallout from the COVID-19 pandemic.

That’s according to the most recent forecast and trends presented by experts at this year’s Nevada Economic Forum. These experts’ opinions spotlight intriguing viewpoints and projections so your credit union can plan appropriately.

Nevada Economic Forum
Presented on Nov. 10 by the Nevada Employment, Training and Rehabilitation Department (DETR) and Moody’s Analytics consulting firm:

As Nevada’s economy recovers, the state’s total non-farm payroll employment level won’t reach pre-pandemic territory (January 2020) until sometime in mid-2022. The state recorded 1.44 million workers employed in January of this year (and a record-low unemployment rate of 3.6 percent) before plunging to 1.15 million (a 20 percent drop) during the crisis point of the COVID-19 recession in springtime. Nevada will experience slow and steady growth in its job market over the next 12 – 24 months, which assumes an effective COVID-19 vaccine is approved, available, and effectively distributed sometime within the first six months of 2021. This forecast also “prices in” lingering economic impacts from the drastic fallout in the state’s employment from early to mid-2020.

Nevada’s various industries will recover faster or slower over the next 1 – 2 years depending on which parts of the economy they serve. Comparing percentages to each other, some local industries will recover below, on par, or above their pre-pandemic recession trendline. Areas growing above average going forward include the goods-producing, construction, non-durable goods manufacturing, trade-transportation-utilities, wholesale trade, warehousing, education, and health services industries. Those growing below average include the mining, manufacturing, information-technology, financial activities, leisure-hospitality, and “other” services industries. Those forecasted to grow at an average pace are retail trade, professional-business services, and government sectors.

Nevada’s economic recovery over the next two years will continue telling a tail of two regions that are already recovering quite differently. One area is relatively flourishing under the post-recession circumstances (Reno, Sparks, Carson City) in direct comparison to another area that’s ground-zero for unemployment in the entire nation (Las Vegas, Paradise, Henderson, Mesquite, and Boulder City) due to these southern communities’ reliance and concentration in leisure, hospitality, tourism, and gaming. From a high-level view, the “local” unemployment rate ranged from 8.6 – 12.9 percent in October depending on which area of Nevada was examined (compared to 3.1 – 4.3 percent in February). However, using a deeper view, this measurement ranged from only 5 – 8.3 percent in northern cities like Reno, Sparks, Elko, and Fernley City (compared to 3.1 – 4.9 percent in February), while it ranged from 11 – 14.8 percent in southern cities like Las Vegas and surrounding communities (compared to 3.5 – 4.5 percent in February) — start differences.

Nevada’s recent pace of job growth is slowing. The state’s unemployment rate fell rapidly in the summertime when a large number of businesses were simultaneously able to reopen. But after a strong initial recovery, the state has now moved into a slower phase that depends largely on individual responses to COVID-19 in the short term. Also, Nevada’s economy is transitioning to a more typical recovery as major business restrictions are being lifted at a slower pace with COVID-19 still at heightened awareness.

Nevada’s unemployment rate fell to 12 percent in October, down from 30 percent earlier this year (but still up from 3.7 percent compared to October of last year). The state added 3,600 jobs in October (the sixth consecutive month) but is still down by 117,200 compared to the year-ago period — a large gap that continues closing very slowly. Total employment has regained 58 percent of the 287,300 jobs lost from February to April (or 166,600 jobs). Total employment is now at 1.305 million active jobs.

Nevada’s continuing unemployment insurance claims — which represent the current outstanding number of insured unemployed workers filing weekly for insurance benefits — fell for the 13th consecutive week in early November. This figure now stands at 105,600, a decline of 8,150 claims (or 7.1 percent) from the previous week (114,100). This is the fewest number of continuing claims since March 28 when there were 58,800 claims filed. Survey results from Oct. 30 show that the percentage of adults in Nevada who expected someone in their household to experience a loss in employment income over the next four weeks was 34 percent, unfortunately rising from 30 percent the month prior (but ranged from 40 – 48 percent from April to July). The weekly data is from the U.S. Census “Household Pulse Survey,” which is highly subjective to workers’ immediate feelings and emotions about their ties to the job market and labor force participation. Overall, the total number of unemployed individuals in different categories across the state was 245,000 as of early November.

A significant number of people are transitioning into federally paid extended unemployment benefits, which expire at the end of 2020 under current law. Overall, levels of all types of unemployment claims and categories are very elevated compared to pre-pandemic levels. The state’s total “initial” unemployment claims payments averaged about $350 million per week from April to August, but from late August to October they downshifted to an average of $125 million per week. Since March 1, payments under the state’s Regular Unemployment Insurance program total $2.56 billion; those under the Pandemic Unemployment Assistance (PUA) program total $745 million; those under the federal Pandemic Emergency Unemployment Compensation (PEUC) program total $231 million; and those under the Extended Benefits program total $16 million — for a grand total of $3.55 billion. PUA payments represent 29 percent of all unemployment insurance claims so far, and PEUC payments represent 9 percent (with the former being very low in Nevada compared to other states but the latter very similar to other states).

Nevada’s economic recovery will lag other states, as well as the entire nation, due to the Las Vegas/Henderson/Mesquite regional consumer and business demographics. This area has a high concentration of leisure, hospitality, and gaming jobs compared to the rest of the state (especially in contrast to the Reno-Sparks, Carson City and Lake Tahoe regions). Annualized U.S. gross domestic product (GDP) won’t reach its pre-pandemic peak until first quarter of 2022 ($19.5 trillion), with states like Nevada rising in tandem at its own pace. After combining measurements in previous COVID-19 infections, current demographics, commuting patterns, population density, local industrial/job mix, and local income levels, the greater Las Vegas region is still one of the most economically vulnerable areas in the nation to the COVID-19 recovery (along with 40 other metropolitan areas across the country) comparatively to dozens of regions (most are in California, Texas, Florida, and New York).

The percentage change in Nevada’s local job industries from February to September reveals which jobs are recovering faster versus slower: -16 percent (hospitality); -14 percent (information/technology); -13 percent (professional and business services); -10 percent (wholesale trade); -8 percent (local, state and federal government); -7 percent (construction); -6 percent (transportation); -4 percent (education and healthcare services); -4 percent (retail); -4 percent (manufacturing); and -2 percent (finance). All percentage losses are higher than the same job categories for the United States, except hospitality, manufacturing, and education-health services.

Leisure and hospitality jobs make up the largest share of lost payroll positions in both Nevada and the United States. Although the economic damage in Nevada is great, the state has actually been able to outperform the rest of the country when it comes to the share of job losses that it’s recovered in this particular industry. That’s because Nevada’s recovery hinges so much on these types of jobs versus the nation. However, long-term economic and labor market recovery in leisure and hospitality across the state also depends on the ability to bring back airline passengers, especially visitors from overseas in addition to domestic vacationers. As Nevada’s economy continues to recover, this recovery makes underlying assumptions regarding the confirmation, approval and distribution of a viable COVID-19 vaccine being released by mid-2021, with relatively widespread distribution completed by autumn of 2021.

A divergence between consumer disposable income growth and sales-and-use tax in Nevada is coming soon. Annualized disposable income growth for Nevada consumers (due to less spending, more saving, and federal/congressional relief monies) was 17 percent in mid-2020, while sales tax collections plunged -22 percent in a short window of time during the year. However, the sales-and-use tax forecast is -1.7 percent for 2020; -1.9 percent in 2021; 1.4 percent in 2022; and 4.8 percent in 2023 (essentially gaining back its stride in 2023 and hitting $1.27 billion that year). Nevada’s dependance on sales-and-use taxes is very evident compared to other states. Data from the U.S. Census Bureau’s annual survey of state and local government finances shows that in 2017, the state ranked third-highest of all states for state-level general sales tax collections per capita (at $1,627). For comparison, Hawaii is the highest at $2,278 and Virginia is the lowest at $472. In tandem, Nevada’s gaming percentage fee forecast is -18 percent for 2020; -18 percent in 2021; 9 percent in 2022, and 13 percent in 2023 (basically getting back to speed in 2023 and reaching $627 million that year).

Recent commute and leisure traffic at major travel intersections across Nevada are finally seeing an uptick over the past few months. At the intersection of Interstate 15 and Primm, NV, there’s been an average weekly uptick (on a year-over-year comparison basis) of 25 percent from September to November (compared to a -40 percent drop on average from March to August). The same trend is true for the intersection of Highway 50 and South Tahoe, NV, where the rise is more subtle but still welcome — about 5 percent from October to November (compared to a -40 percent drop on average from March to September).

You can view the entire DETR forecast, including individual job/industry payroll growth projections for the entire state. Make sure to click here to obtain everything you need from the “Summary of Labor Market Conditions and Outlook” — the latest forecast presented by the Nevada Employment, Training and Rehabilitation Department (DETR) during this year’s Nevada Economic Forum event.

You can also view the Moody’s Analytics presentation slides. Be sure to click here to see the “Economic Outlook and Revenue Forecast” from a Moody’s Analytics presentation during this year’s Nevada Economic Forum conference.

For a variety of other industry presentations at the event, see the Nevada Economic Forum webpage. You can click here and scroll down to see individual presentations by the Retail Association of Nevada; the state’s Fiscal Analysis Division; the Executive Budget Office; the Department of Taxation and Major Revenue; the Gaming Control Board; and many other gaming industry/revenue model forecasts.

Northwest Nevada (Grater Reno-Sparks Region)
Released Nov. 3 by EKAY Economic Consultants Inc. (Reno MSA Economic Outlook and Industry Trends for September/October 2020):

The Reno-Sparks metropolitan region's leading economic index — an ongoing projection of future positive or negative economic activity based on current business/consumer activity — surpassed its pre-COVID level (February) by late September (recovering more than 100 percent). By this forward-looking exclusive measurement — based on gaming revenue, taxable sales, home sales, airport passengers, airport cargo, local unemployment claims, monetary supply, and the national stock market — the next 6 to 12 months look positive in general based on month-to-month data (although year-over-year data is still noticeably negative compared to this time last year). Local non-farm employment is up 0.01 percent from September to October of 2020 (but down 6 percent from September 2019 to September 2020). Additionally, local household employment is up 2.9 percent from September to October 2020 (but down 8.4 percent from September 2019 to September 2020).

However, the Reno-Sparks area’s corresponding coincident economic index (what actually takes place in the economy when looking back) has only recovered 63 percent from its COVID-19 drop. The coincident index increase is the result of the partial reopening of the economy following COVID-19 quarantine measures in March and April 2020. While recovering, this index has still declined by 7.3 percent from September 2019 to September 2020 as some businesses remained closed or open with restrictions, and some employees are choosing to postpone their return to work (meaning the index is at a level not experienced since early 2018). The leading index (mentioned up above) gives hope that the months to come will show an even greater recovery than what’s already transpired in the coincident index. Additionally, the recovery is uneven across the state — the Reno-Sparks region’s job market health is significantly outpacing the Las Vegas region (in addition to never reaching the same unemployment spike that Las Vegas experienced earlier this year).

The Reno-Sparks region’s economic recovery will continue to be impacted by the pandemic and its medical resolution. Further shutdowns can quickly turn the local "V-shaped" recovery in many areas into a W-shape or a very extended V-shape. Time will tell as more data becomes available in the months ahead. Most local industries have reopened, though some with restrictions. This has resulted in a “V-shaped” recovery within very specific local economic/business categories. As businesses reopen, employment and spending are increasing, and unemployment is declining. Much of the recovery has been driven by the region’s industry diversification, since over many years employment has shifted from a leisure/hospitality base to a manufacturing and logistics focus. The region continues to attract new companies and expand existing businesses, helping shield it from recessionary impacts plaguing other parts of Nevada and the United States.

For more local information and data: see the latest Reno MSA Economic Outlook (September/October 2020).

Nevada: Demographics, Labor, Education & Economic Resources

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