Beginning in 2007 through 2009, the Great Recession affected Las Vegas more than anywhere else in the United States. The Las Vegas economy will, once again, be dealt a difficult hand as a result of the COVID-19 global pandemic, according to Stephen M. Miller, director of the Center for Business and Economic Research (CBER) and economics professor at Lee Business School.
Miller notes that Las Vegas employs almost 30 percent of its workforce in the leisure and hospitality sector. The March 2020 U.S. employment report showed that more than 65 percent of the jobs lost because of the various shutdowns around the United States came from the leisure and hospitality sector (459,400 jobs lost out of a total loss of 701,000 nonfarm jobs). With these numbers, Las Vegas will likely lead other metro areas in the negative effects of the current economic downturn.
Miller came to UNLV in July 2001, just a few months before 9/11, and he experienced first-hand the damage inflicted on Las Vegas by the Great Recession. His research interests span a wide range of economic topics, including macroeconomic theory and policy, bank scale and efficiency, central bank decision making, housing, forecasting, and regional economics.
Here, he answers questions of what is likely to come for Southern Nevada based on his research and experience.
What do you foresee as the long-term economic impact of the global pandemic on Las Vegas?
Once the public health crisis resolves itself and the COVID-19 dissipates, it will take some time for the Las Vegas economy to recover. The airlines sector needs to reestablish routes and flights to Las Vegas. The tourists need to become confident that it is safe to travel for a vacation in Las Vegas, which will necessitate a carefully crafted and targeted marketing campaign. Drive-in tourists from California and other states may come back sooner. At the same time, the resort hotels need to sanitize and prepare the facilities to accept the surge of visitors to Las Vegas. The resort hotels will likely go to great lengths to convince the traveling public that the facilities are extremely safe. In the long run, Las Vegas will come back as an international destination for entertainment.
How long do you think it will take for business to go back to business as usual?
To go back to “usual” depends on tourism flows. Some argue that Las Vegas will never return to where it was before COVID-19. I disagree.
Before this public health crisis hit, Las Vegas was poised for a new era in its history. Sports entertainment had taken off and was continuing to provide significant buzz vis-à-vis the future of Las Vegas. Construction of the Raiders’ stadium and the Sphere will provide significant new possibilities for entertainment and tourism. This will add to the enormous footprint of the Las Vegas Golden Knights. At the same time, plans exist for the addition of 12,000 new hotel rooms over the next five to six years. While the final number of new rooms may adjust downward, many of these rooms will still come online.
Thus, I believe that the tourists will return, and that Las Vegas will climb back onto its path into the future. It may take a couple of years to convince tourists that it is safe to travel to Las Vegas for vacations. As this tourism base is rebuilt, Las Vegas will attract some tourists who in the past would have traveled overseas, but now in the recovery from the COVID-19 recession will decide to vacation at home. [It's a market] where Las Vegas can compete successfully.
Based on projections, what percentage of small businesses won’t survive the shutdown?
The Federal Reserve, the U.S. Treasury, the U.S. Congress, and the U.S. administration all are laser-focused on providing relief to workers and businesses. To date, the federal government has committed trillions of dollars, which seemingly grows every day, to shore up small- and medium-sized businesses. Today, as I write this answer, the press reports that the initial $359 billion allocated to support the Payroll Protection Program committed its last dollar. Congress and the administration now face the issue of providing more funding for this program.
The goal is to keep employees tied to their current employer until the economy reopens in the near future, where opening in the near future is an assumption. The number of business failures will depend on the success of these new unprecedented federal initiatives. Small businesses fail at a high rate under normal conditions in the economy.
And what about unemployment?
The unemployment rate will peak quickly in a couple of months. This will occur quickly because the recession is a result of state governments ordering a shutdown of non-essential businesses.
In the last four weeks, we booked a record 22 million initial claims for unemployment insurance. More should be forthcoming as the tidal wave of claims has left many unable to file their claims. As a perspective, total employment in the United States ranges just over 154 million. Thus, the initial claims just noted equal just over 14 percent of the labor force.
How do you predict these circumstances will impact Las Vegas versus Reno?
Gov. (Brian) Sandoval established the governor’s office of economic development (GOED) with the goal of diversifying the Nevada economy. GOED has actively recruited businesses to Nevada. To date, the story is a “tale of two cities” – Reno and Las Vegas. The attraction of the Tesla Gigafactory to the Tahoe-Reno Industrial Center spearheaded significant diversification in the Reno area. Reno’s manufacturing base in terms of employment percentage matches the national number.
Las Vegas saw a glimmer of hope with Faraday Future. Unfortunately, the Future disappeared into Las Vegas’s past as Faraday decided to leave Las Vegas before significant construction activity began. As a result, Las Vegas still relies on leisure and hospitality for just under 30 percent of its labor force. Reno’s reliance on leisure and hospitality employment has fallen to just over 15 percent.
What impact do you think the virus will have on sports entertainment?
Sports entertainment is the newest player in the local economy. It showed enormous promise as an attractor of new tourism flows to Las Vegas. Once the economy returns to “usual,” significant pent-up demand for sports will emerge and contribute its share to the flow of tourists to Las Vegas.
How long do you think it will take for Las Vegas to recover if the stay-at-home orders ended April 30?
While it is difficult to forecast, I think that the bulk of recovery will occur within 18 to 36 months. The key will be the length of time it takes to develop an effective vaccine for the coronavirus.
Is there a silver lining for Southern Nevada?
Nevada is the “Silver State.” The entrepreneurial spirit in the Las Vegas community suggests that if any city can reconfigure itself and come back as the Entertainment Capital of the World, Las Vegas can.