Leaving Las Vegas…
…Las Vegas’s rise and fall has been more dramatic than most. Last year, Clark County’s population declined for the first time in more than two decades. More than 10,000 people left Las Vegas between July 2007 and July 2008, according to Keith Schwer, director for the Center for Business and Economic Research at the University of Nevada Las Vegas. The unemployment rate in the metropolitan area tripled from 4% in May 2007 to just over 12.3% in June 2009, higher than the national rate of 9.5%. And after the median price of existing homes rose by 122% in sales between 2000 and 2006 — more than double the national rise of 49% — sale prices fell by 30% between last year and this year.
The wage growth for union jobs was WAY out of line with the rest of the country:
…Union workers — who account for the bulk of employment along the Las Vegas Strip — saw their pay grow by 12.6% between 2000 and 2008, while union workers nationwide saw an increase of 2.9%, according to the Economic Policy Institute. Nevada’s non-union pay increased by 5.4% in the same period, while wages for all workers in the U.S. increased by 1.6%.
The union made upward mobility part of the Vegas allure. In Vegas, the union-negotiated salary for a hotel maid is still $14.25 an hour. In contrast, the median wage for the same worker in Orlando is $8.84 an hour; in Phoenix, it’s $9.25, according to the Bureau of Labor Statistics…
Boom is bust:
…Drew Johnson and his wife, Tina had the life many Americans only dream of: A big house in a swanky suburb, a backyard hot tub, and a $100,000 deposit on a new condo with views of the Las Vegas Strip and 24-hour concierge service.
They did it all on the salaries of a construction-equipment salesman and a cocktail waitress who brought in $1,000 a week in tips alone. But the recession has slashed their incomes by nearly half, and financing for the condo might not come through.
“It’s Vegas,” says Mr. Johnson, who fears he could lose most of his deposit. “We gambled.”…
All of Vegas rolled Snake Eyes. Here in Phoenix, speculators gambled too and dragged our home values down with them. But as a Right to Work State, Phoenix has something Vegas does not – a business friendly environment. Now that the high rollers are all tapped out for Vegas travel it is unlikely there will be many more $15.00 an hour housekeeping jobs for hire…but the union bosses are DEEP in denial:
…”I think we’ll be like a phoenix,” says D. Taylor, the secretary-treasurer for Culinary Union Local 226, which represents 55,000 hotel and casino workers. The union recently agreed to delay a negotiated 34-cent-an-hour pay increase for one year. But Mr. Taylor still expects a turnaround. “People like to kick us around, but we’ll come back bigger and stronger and more exciting and vibrant.”…
Guess Mr Taylor hasn’t gotten the memo from Bill Gross on the ‘new normal’. D-e-n-i-a-l, now appearing nightly on the Strip.
5. The New Normal is a state where growth is slower, profit margins are narrower, and asset returns are smaller than in decades past based upon the delevering and reregulating of the global economy, which in turn should substantially inhibit the “gorging” of goods and services that we grew used to in decades past.
6. Econometric models miss these secular/structural breaks in historical patterns because it is impossible to quantify human behavior. Human beings do not make decisions by chance or independently of each other, but in many cases in reaction to one another
7. The supersizing of financial leverage and consumer spending in concert with the politicizing of deregulation describes our most recent brush with irrational behavior and inefficient markets.
It seems the union bosses are the only folks in Vegas who are unaware of the sea-change in consumers:
…Harvey Perkins, a gambling consultant with Spectrum Gaming, believes the industry can no longer depend on regular Americans to behave like high rollers. “I think people have fundamentally changed in their spending patterns.” The casino business model, he says, will have to be “re-engineered.” Vegas, Mr. Perkins and others believe, will have to return to the days of being a bargain destination…
…There won’t be another [casino] property built in Las Vegas for a decade,” says Jim Murren, chief executive of MGM Mirage, Nevada’s largest employer….
But all is not lost, Vegas will rise again as human nature reasserts itself and forgets the lesson. As Bill Gross notes:
8. Greed will come again. But for now, the trend is the other way and it promises to persist for a generation at a minimum.