The Las Vegas Economic Downturn Has Started
The spillover effect from our national economic downturn has finally started to impact Las Vegas, and casino layoffs have officially begun (as I've been forecasting for some time):
MGM Mirage Inc., the largest casino operator on the Las Vegas Strip, told more than 400 middle management employees they would be terminated immediately in a cost-saving move, the company said.
The decision will save $75 million annually and came after the company saw weakness since August at its properties, which include Bellagio, MGM Grand, Mirage and Mandalay Bay, spokesman Alan Feldman told The Associated Press on Monday.
The move is the largest and swiftest by a casino operator in the current economic downturn, although the use of so-called "extra board" employees such as dealers and busboys who take fill-in shifts as needed has been down citywide.
Budget-tight guests have shown a tendency to spend less in all major segments of the business, Feldman said.
"Instead of four days, people stay for three. Instead of a five-star experience, they are going for four stars. Instead of two shows, they're going to one," he said. "There certainly is the possibility that there are people who are also making a decision to gamble less."
My thoughts on the casino job cuts:
Looking into the future, I'm certain this "recently released" news is merely the opening salvo for thousands, upon thousands of additional Las Vegas job cuts to come.
The worsening housing crisis, dried up credit markets, high fuel prices, loss of consumer wealth effect and uncertain employment outlook will only lead to reduced visitor volume levels and exacerbate the already reduced discretionary spending levels of the tourists who do come.
I have written about this "Las Vegas Domino Effect" several times in the past. A couple of my posts below:
In other Nevada News -- Gaming Revenue down:
Nevada casino wins down nearly 4 percent in February (Note: Las Vegas makes up the majority of the casino/gaming market in Nevada)
There was no leap in the win for Nevada casinos in February despite an extra Leap Year day in the month and other seemingly positive factors. The clubs won $1.01 billion, down nearly 4 percent compared with the same month a year earlier.
The slump occurred despite a 29th day for the month, the reopening of a major Las Vegas resort that had been closed by a fire, and tourist draws including Super bowl and Chinese New Year activities and a three-day President's Day holiday.
"We were disappointed but we can't say it was unexpected," Gaming Control Board analyst Frank Streshley said in releasing the February win report on Wednesday. "It's definitely a reflection of the soft economy and people tightening up their spending habits."
Wednesday's Control Board report is the latest in a series of reports with grim economic news. In late March, other documents showed a continuing slump in sales and higher-than-average unemployment in Nevada.
The Nevada Real Estate market also made headlines today (again--for the 15th straight time): Foreclosures jump 57% in March -- Nevada once again leads the nation in defaults (Note: Las Vegas foreclosures make up the vast majority for Nevada)
NEW YORK (CNNMoney.com) -- Foreclosure filings jumped 57% in March compared with the same month last year and rose 5% versus February, as the nation's housing market continues to deteriorate.
RealtyTrac, an online marketer of foreclosure properties, said Tuesday that 234,685 homes were hit with foreclosure filings last month, which include default notices, auction sale notices and bank repossessions. Of those, 51,393 homes were lost to foreclosure - a 10% increase over the number of homes lost in February.
"What this report shows us is that the housing market correction is ongoing and we shouldn't expect the subprime problem to vanish anytime soon," said Jared Bernstein, a senior economist with the Economic Policy Institute.
On a year over year basis, the number of homes repossessed by banks are up 129%.
Nevada had the highest foreclosure rate of any state in March, marking the 15th consecutive month that it's has topped the list. One out of every 139 Nevada households received a foreclosure filing last month, which is nearly 4 times the national average, and an increase of 62% versus March 2007.
Nevada State tax receipts have fallen almost 9% short of expectations because of the economic downturn spawned by the collapse of the real estate market: Nevada Budget shortfall hits $913.7 million (My thoughts--State/County/City Job cuts to follow shortly?)
Of the $913.7 million total shortfall, about $643 million is the revenue hit directly on the general fund from reduced tax collections. In addition, the state must kick in $194 million to cover the sales tax shortfall to Nevada school districts, which is required by statute, $60.7 million to Medicaid because of higher than expected caseloads, the $15.5 million shortage in the Division of Child and Family Services and a $280,000 shortage in welfare services.
Agencies already cut their budgets by 4.5 percent in January. That included more than $200 million in operational and program reductions out of a total of $564.7 million in first round reductions.
"We just hope we're not going to be doing this again in three months," said Ways and Means Chairman Morse Arberry.
As previously stated by this author: The Las Vegas economy lacks any real/substantial diversification from gaming/tourism and we are completely dependent on the discretionary spending of vacationers.
As you just read above, this discretionary spending has now started to slow and the negative consequences are beginning to effect the broader economy & casino employment numbers. I personally expect these problems to get much worse over the next 24+ months... As the layoffs increase, mortgage defaults will continue to swell and the availability of 1-way U-haul rentals (out of town) will become very scarce.