CENTER FOR BUSINESS & ECONOMIC RESEARCH LEE BUSI N ESS SCHOOL ANNUAL LONG-TERM ECONOMIC FORECAST CLARK COUNTY

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1 CENTER FOR BUSINESS & ECONOMIC RESEARCH LEE BUSI N ESS SCHOOL ANNUAL LONG-TERM ECONOMIC FORECAST CLARK COUNTY Analysis of the Long-Term Economic Forecast T he long-term economic forecast calls for the continuation of the economic recovery in 2014 and steady employment growth through Figures 1 through 8, respectively, report the employment, Gross Regional Product (GRP), and personal income predictions for Clark County from the calibrated model. Figure 1: Total Employment ( ) Employment forecast Our forecast of total employment for Clark County is shown in Figure 1. The forecast predicts a steady economic recovery for Southern Nevada from 2014 onward. The Las Vegas economy is forecasted to add 32,000 new jobs in The forecast also predicts that the Las Vegas economy will return to the 2007 peak employment level (1.18 million jobs) by It is projected that by 2050 Clark County s total employment would be slightly over 1.8 million. Figure 2: Annual Growth in Employment ( ) The employment growth forecasts for the region are shown in Figure 2. In the long term, we are forecasting that the Clark County economy will enjoy steady job gains through Between 2014 and 2015 total employment in the region is expected to grow at about 3.1 percent per year. The growth rate then declines to about 2.4 percent per year between 2016 and 2020 and eventually stabilizes at around 1 percent as the Southern Nevada economy reaches maturity. We forecast that the Clark County workforce will be roughly 1.8 million by the year

2 2 CBER Annual Long-Term Economic Forecast Clark County The future path of Clark County employement is a product of the employement outlooks for the major industries of the region. Figure 3 shows the employment forecast for the major industries of the Clark County economy. We predict that the tourism sector, accommodation and food services, will continue to dominate the economy of the region. Accomodation and food services remains by far the leading sector of the region s economy, followed by retail trade. As the demand for elderly care services continues to increase in the United States. In the long term, our forecast predicts that the health care industry surpasses the retail trade sector to become the second leading industry in the region after Over the entire period 2014 to 2050, total employment in Southern Nevada is forecasted to grow by an average of 1.6 percent, as show in Figure 4, with a wide variation in performance across the major sectors of the region. The strongest growth is expected in the health care services sector, which is expected to expand at a rate of 4.4 percent per year. This is no surprise as the retired population in the United States continues to grow and new retirees look for cheaper and warmer places to live across the nation. The construction sector, which suffered the biggest employment losses during the recent recession, is expected to see a strong growth over the longterm horizon. We project an average growth rate of 4.2 percent per year for the construction industry. Accommodation and food services, the largest sector of the Southern Nevada economy, is projected to grow steadily at an average rate of 1.2 percent per year over the long term. Modest growth is projected in real estate services, finance, and governement jobs. Slightly faster growth is anticipated for the other industries category which comprises farming, mining, manufacturing, education, and professional and business services. Figure 3: Employment by Industry ( ) Figure 4: Average Annual Employment Growth by Industry ( )

3 CBER Annual Long-Term Economic Forecast Clark County 3 Gross regional product forecast Gross Regional Product (GRP) is defined as the dollar value of all final goods and services for sale in a regional economy. As such, it reflects the output of a local economy and avoids doublecounting initial and intermediate goods. The long-term forecast for the inflationadjusted (real) GRP of Clark County, shown in Figure 5, basically mirrors the pattern of local employment but also reflects continued growth in productivity throughout the majority of the forecast. Personal consumption expenditures will continue to dominate the region s GRP. The GRP share of personal consumption is also projected to grow larger in the long term, as Figure 5 shows. Figure 6 shows the average annual growth rates in the region s real GRP over the range of the long-term forecast. Coming out of the Great Recession, the Clark County economy is projected to experience a fast-paced growth with annual rates around 4.5 percent between 2014 and Then the annual GRP growth rates are projected to stabilize at around 2.5 percent as the Southern Nevada economy reaches maturity. Figure 5: Gross Regional Product Forecast ( ) Figure 6: Average Annual Growth in GRP ( )

4 4 CBER Annual Long-Term Economic Forecast Clark County Personal income forecast Income is another key dimension of the region s economic profile. Real personal income per capita is regarded by most economists as one of the key measures of well-being for a region. Figure 7 shows the long-term forecast of real personal income per capita for the Southern Nevada economy. We project that the region will see a steady growth in real personal income per capita through Figure 8 shows the average annual growth rates in real personal income per capita for the period 2014 through The recovery from the growth recession provides a boost to per capita income. The first two years of the forecast, 2014 to 2015, are the strongest with real income per capita increasing by an average of 2.1 percent per year. Then we project a gradual slowdown in income growth in the next ten years. We expect that real income per capita will grow at an average rate of 1.8 percent during the years 2016 to From 2021 to 2025 real income per capita in Southern Nevada is projected to grow at an average rate of 1 percent per year. After 2025, real personal income growth is projected to gradually increase and eventually stabilize to an average rate of 1.7 percent in the 2031 to 2050 period. Figure 7: Real Personal Income Per Capita ( ) Figure 8: Average Annual Growth in Personal Income Per Capita ( )

5 CBER Annual Long-Term Economic Forecast Clark County 5 Risks to the Forecast Our Southern Nevada population forecasts rest on economic and demographic models set in the context of a structured framework. This structure keeps our long-term forecasts consistent with our objectives. We have separated the long-term trend from the noise that one finds in time-series data. These noise factors include the business cycle and seasonal and irregular events. The reliability of the long-term forecast hinges on the new growth path that will emerge from the recent economic recession. As the current employment figures show, the recovery from the recent recession is slower in Southern Nevada as compared to the national economy. The Las Vegas unemployment rate was 8.9 percent in December of 2013, compared to the U.S. unemployment rate of 6.7. The recent recession also may have caused a structural change in consumer spending habits. While the Las Vegas visitor volume has exceeded the levels seen before the recession, it is becoming clear that visitors seem to be gambling less and purchasing less from the retail shops at casinos. As a result, the spending for each visitor may remain at a lower level than during the boom period, and it may be some time before consumers return to earlier spending levels. Methodology We develop a long-term forecast of the Clark County economy that is consistent with the structural economic characteristics of the county. Toward this end, we employ a general-equilibrium demographic and economic model developed by Regional Economic Models, Inc. (REMI), specifically for Clark County. The REMI model is a state-of-theart econometric forecasting model that accounts for dynamic feedbacks between economic and demographic variables. Special features allow the user to update the model to include the most current economic information. CBER calibrates the model using information on recent local employment levels, spending on local capital projects, and adjustments for amenities related to local population growth. The model employed divides Nevada into five regions: Clark County; Nye County; Lincoln County; Washoe County; and the remaining counties, which are combined to form a fifth region. These regions are modeled using the U.S. economy as a backdrop. The model contains over 100 economic and demographic relationships that are carefully constructed to concisely represent the Clark County economy. The model includes equations to account for migration and trade between Nevada counties and other states and counties in the country. The demographic and economic data used to construct the model begin in 1990, the most important of which include the aggregate totals of employment, labor force, and population. The economic data for the most recent version of the model (REMI PI+ v1.5) are consistent with the North American Industry Classification System (NAICS). The most recent data for REMI PI+ v1.5 are from 2011 because the Bureau of Labor Statistics (BLS) personal-income data are reported with a two-year lag. Over the years, the availability of the income data has been the key in setting the last year of history in the model. The REMI model is the best model available for describing how economies interact geographically. 1 These interactions may take place within a single economy (such as the interaction between house-price growth and employment growth in Clark County) or between two economies (such as the interaction between Southern Nevada and Southern California). These and over 100 other interactions contained within the model are too complex to consider modeling on our own. Rather, we turn to the REMI model because it has a solid foundation in economic theory and the principles of generalequilibrium-based growth distribution, yet it still offers the flexibility required to model a regional economy like Clark County. 1 See Schwer, R. K. and D. Rickman (1995), A comparison of the multipliers of IMPLAN, REMI and RIMS II: Benchmarking ready-made models for comparison, The Annals of Regional Science.

6 Table A1: Employment (in 000s) Variable Total Employment Total Employment as Share of Nation Private Non-Farm Forestry, Fishing, Other Mining Utilities Construction Manufacturing Wholesale Trade Retail Trade CBER Annual Long-Term Economic Forecast Clark County Transportation and Warehousing Information Finance and Insurance Real Estate and Rental and Leasing Professional and Technical Services Mngmt of Companies and Enterprises Admin and Waste Services Educational Services Health Care and Social Assistance Arts, Entertainment, and Recreation Accommodation and Food Services Other Services, except Govt Government State and Local Federal Civilian Federal Military Farm

7 Table A1: Employment (in 000s) continued Variable Total Employment Total Employment as % of Nation Private Non-Farm Forestry, Fishing, Other Mining Utilities Construction Manufacturing Wholesale Trade Retail Trade Transportation and Warehousing Information Finance and Insurance Real Estate and Rental and Leasing Professional and Technical Services Mngmt of Companies and Enterprises Admin and Waste Services Educational Services Health Care and Social Assistance Arts, Entertainment, and Recreation Accommodation and Food Services Other Services, except Govt Government State and Local Federal Civilian Federal Military Farm CBER Annual Long-Term Economic Forecast Clark County 7

8 Table A1: Employment (in 000s) continued Variable Total Employment Total Employment as % of Nation Private Non-Farm Forestry, Fishing, Other Mining Utilities Construction Manufacturing Wholesale Trade CBER Annual Long-Term Economic Forecast Clark County Retail Trade Transportation and Warehousing Information Finance and Insurance Real Estate and Rental and Leasing Professional and Technical Services Mngmt of Companies and Enterprises Admin and Waste Services Educational Services Health Care and Social Assistance Arts, Entertainment, and Recreation Accommodation and Food Services Other Services, except Govt Government State and Local Federal Civilian Federal Military Farm

9 Table A2: Gross Regional Product (Billions of fixed 2005 $) Variable Personal Consumption Expenditures Vehicle & parts Computers & furniture Other durables Food & beverages Clothing & shoes Gasoline & oil Fuel oil & coal Other non-durables Housing Household operation Transportation Medical care Other services Gross Private Domestic Fixed Investment Residential Nonresidential structures Nonresidential equipment Change in Private Inventories Exogenous Final Demand Government Consumption Expenditures Federal Military Federal Civilian State and Local Government Total Exports Total Imports CBER Annual Long-Term Economic Forecast Clark County 9

10 Table A2: Gross Regional Product (Billions of fixed 2005 $) continued Variable Personal Consumption Expenditures Vehicle & parts Computers & furniture Other durables Food & beverages Clothing & shoes Gasoline & oil Fuel oil & coal Other non-durables CBER Annual Long-Term Economic Forecast Clark County Housing Household operation Transportation Medical care Other services Gross Private Domestic Fixed Investment Residential Nonresidential structures Nonresidential equipment Change in Private Inventories Exogenous Final Demand Government Consumption Expenditures Federal Military Federal Civilian State and Local Government Total Exports Total Imports

11 Table A3: Income (Billions of fixed 2005 $) Variable Personal Income Personal Income Per Capita (Thousands) Total Earnings by Place of Work Total Wage and Salary Disbursements Supplements to Wages and Salaries Employer contributions for employee pension and insurance funds Employer contributions for government social insurance Proprietors income with inventory valuation and capital consumption adjustments Less: Contributions for Government Social Insurance Employee and Self-Employed Contributions for Government Social Insurance Employer contributions for government social insurance Plus: Adjustment for Residence Gross Inflow Gross Outflow Equals: Net Earnings by Place of Residence Plus: Rental, Personal Interest, and Personal Dividend Income Plus: Personal Current Transfer Receipts Equals: Personal Income Less: Personal current taxes Equals: Disposable personal income CBER Annual Long-Term Economic Forecast Clark County 11

12 Table A3: Income (Billions of fixed 2005 $) continued Variable Personal Income Personal Income Per Capita (Thousands) Total Earnings by Place of Work Total Wage and Salary Disbursements Supplements to Wages and Salaries Employer contributions for employee pension and insurance funds Employer contributions for government social insurance Proprietors income with inventory valuation and capital consumption adjustments CBER Annual Long-Term Economic Forecast Clark County Less: Contributions for Government Social Insurance Employee and Self-Employed Contributions for Government Social Insurance Employer contributions for government social insurance Plus: Adjustment for Residence Gross Inflow Gross Outflow Equals: Net Earnings by Place of Residence Plus: Rental, Personal Interest, and Personal Dividend Income Plus: Personal Current Transfer Receipts Equals: Personal Income Less: Personal current taxes Equals: Disposable personal income

13 Table A3: Income (Billions of fixed 2005 $) continued Variable Personal Income Personal Income Per Capita (Thousands) Total Earnings by Place of Work Total Wage and Salary Disbursements Supplements to Wages and Salaries Employer contributions for employee pension and insurance funds Employer contributions for government social insurance Proprietors income with inventory valuation and capital consumption adjustments Less: Contributions for Government Social Insurance Employee and Self-Employed Contributions for Government Social Insurance Employer contributions for government social insurance Plus: Adjustment for Residence Gross Inflow Gross Outflow Equals: Net Earnings by Place of Residence Plus: Rental, Personal Interest, and Personal Dividend Income Plus: Personal Current Transfer Receipts Equals: Personal Income Less: Personal current taxes Equals: Disposable personal income CBER Annual Long-Term Economic Forecast Clark County 13

14 CBER Annual Long-Term Economic Forecast Clark County 14 Custom forecasting services for your business are also available. For information on becoming a forecast sponsor or for an evaluation of your custom forecasting needs, please contact: Stephen P. A. Brown, PhD Director & Professor of Economics (702) Ryan T. Kennelly Economic Analyst & Forecast Manager (702) CENTER FOR BUSINESS & ECONOMIC RESEARCH LEE BUSINESS SCHOOL The Center for Business and Economic Research produces regular economic forecasts. We invite you to become a Forecast Sponsor. The Silver sponsorship level entitles you to the quarterly economic forecast for Southern Nevada. The Gold sponsorship level entitles you to the quarterly economic forecasts for Southern Nevada, Southern Nevada Gaming and Hospitality, and the United States, plus the semi-annual economic forecast for Asia/Pacific. At the Platinum sponsorship level, you will receive these forecast publications, plus the annual long-term economic forecasts for Southern Nevada. Center for Business & Economic Research Box South Maryland Parkway Las Vegas, Nevada Telephone (702) cber@unlv.edu Stephen P. A. Brown, PhD Director & Professor of Economics Constant Tra, PhD Associate Director & Associate Professor of Economics Rennae Daneshvary, PhD Associate Director of Research & Administration, Director of Surveys, Director of Nevada KIDS COUNT Ryan T. Kennelly Economic Analyst Richard Boland Research & Grants Coordinator Peggy Jackman Research Associate