This week on Nevada Week, sticker shock from the gas pump to the grocery store.

Southern Nevada economists explain what's behind the high prices and what role a recession may play in bringing them down.

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Welcome to Nevada Week; I'm Amber Renee Dixon.

The World Bank is warning that most countries are headed for recessions.

With the Great Recession in the late 2000s having hit Southern Nevada harder than most areas in the United States, we check in with three local economists about how a future recession here might compare.

But first we hear from a Las Vegas husband and wife about the immediate concerns their family is facing amid rising costs across the board.

-My name is Rachel Ducksworth.

-My name is Anthony Ducksworth.

-We are married.

This is my husband, yay!

We both work in the medical field, home health aide, CNAs.

-We have five kids.

We get by.

-Yes.

-I think that's the best way to say it.

-With everything that's going on, the increase in everything, it has just caused us some struggles.

A lot of the places where we've had to cut, and it's getting kind of funny, being more mindful of where we're driving to, things like that, going out to eat.

I look at the consumption of our electricity.

You know, being more mindful of lights being on, TVs being on.

It's funny because before the pandemic started, we didn't have internet.

Then the pandemic started, and we had to get internet.

Schools were closed down and the children had to learn via, you know, the internet, so we had to get that.

And being more mindful of how much food we eat, the portion sizes and how much we buy.

It's just been an all-around cut.

-You're robbing Peter to pay Paul.

You get a credit card, you're trying to use that to pay bills but now you've created another bill because the credit card people want their money.

So then you go somewhere else to get some assistance, and now you owe that person.

-I mean, to let you all into our life, we both work and we still receive-- like we stay in I'd say subsidized housing.

We get assistance from the Southern Nevada Regional Housing Authority.

We're on assistance.

We were grateful to receive the assistance that we received during the pandemic, the extra food stamps, things like that.

But even now, you know, some of my worry is okay, now that they're saying that has ended, what are we going to do?

You know, we don't get but $104 a month to feed seven and paying over $1,200 in rent.

We are actually trying to look at buying a home.

My mother currently lives here in Las Vegas.

It's to the point now where we're like okay, what if we all just come in together and we try and get a five, six-bedroom house and we all live together?

Well, two years ago, doing that at $1,400, you could get about a four-bedroom, five-bedroom, $1,400 to $1,600.

Now they're over $3,000 just to rent.

-I come from a time where you could buy a used car for less than $10,000.

Now used cars are more than new cars.

It's ridiculous.

You're at the gas pump making life decisions.

Do I pay my rent, or do I fill up my car?

If I don't fill up my car, I can't get to work to make the money to pay my rent.

It's crazy right now.

Things are just ridiculous, and I just don't understand.

-Joining us now to help us understand some of these economic issues that are top of mind for several Southern Nevadans are John Restrepo, principal of RCG Economics; Andrew Woods, director of UNLV's Center for Business and Economic Research, and Melanie Swick, senior manager at Applied Analysis.

Thank you all for being here.

I want to start with gas prices.

Nevada became the second-most expensive state in the country this past week for gas prices, about $5.50 a gallon.

Why so expensive in general for gas right now, and in particular, why Nevada?

Andrew, I'll start with you.

(Andrew Woods) One of the reasons is that we only have one supply where we get gas from, and that's from California which is the highest rate in the nation.

So we're buying gas from the highest place in the nation and they get their gas internally because they still have some gas wells, but they also import a lot of their gas as well.

Not from the rest of the country, like places on the East Coast get a lot of their gas from either the South coming up through Louisiana or from the Permian Basin coming out of Canada.

So it's an issue of course of supply and demand as usual in economics, but in this case the supply for Las Vegas is very dependent on California.

-And where does the Russia-Ukraine war fit into all of this?

(John Restrepo) I think let me add on to what Andrew just said.

Some of it too is the formulation of gas that we have to use here in the summer for air quality purposes.

That's more expensive to produce.

we have the same issues as California because we have these laws for the types of fuel that we use.

But I mean, as we were talking earlier, gas prices and oil prices are set at an international level, at a global level.

So if there's a disruption in the Ukraine like we're seeing today, those ports are not shipping oil out of the Ukraine, we may not use it directly here, but it affects oil markets in other places, Africa and Asia, that does use that.

So prices are set on these disruptions.

And so right now those kinds of things that are happening in Ukraine whether it's oil, whether it's grain prices, wheat, steel and other commodities are being influenced by how prices are set at the global stage.

So it blows back to all these countries even if directly you don't get a product or commodity from let's say Ukraine or Russia, and that's what's causing a lot of the challenges because of the war and the locking down of ports, pipelines and things like that.

-Melanie, how long do you think Nevadans are going to be paying these prices at the pump?

(Melanie Swick) I mean, it's hard to tell.

Summer typically has a higher rate, so I think we could see the gas prices continuing to increase in the near future.

There's a lot of global factors at risk here, at play here, so there's not as much control that the United States has in controlling those prices.

We can just kind of do what we can do and supply what we can supply.

-How well do you think the U.S. has done in that area?

-What it can do, President Biden opened up the strategic petroleum reserve to try and ease prices.

You know, the Feds are raising interest rates to cool off demand.

So there's a variety of tools.

Are they all particularly effective?

Sort of, but then you still need greater supply.

I think the President's going to be traveling to Saudi Arabia to plead with Saudi Arabia to open up the spigots, but the Saudi Arabians don't have a vested interest in doing it.

They want to keep oil prices high because it makes them more money.

So there's this whole discussion that has to do-- the geopolitical part of this is where it gets really complex.

-I just want to add something about Melanie's point too is through summer, right, we're going to have a strong tourism season, travel season.

We've already been seeing airfares going up, so it's just going to add more demand on these gas prices.

So I could still see that further pain in the future for the near term.

I think depending on what the economy starts to do in the second half of the year, particularly around fall, which is what the Center for Business and Economic Research at UNLV, we're really going to start watching.

We're watching those numbers for the fall because I think that's when potentially things could finally slow down.

After people get through summer, does their spending and their travel plans start to slow down and pull back because it was so expensive over the summer, and even if these things on the geopolitical side get ironed out, it takes three to six months before you see any effect of those.

-While we're on the topic of consumer spending, what is the state of consumer spending now?

How much money do people really have to spend?

What are they spending it on?

How does it tie into inflation?

That is a lot of questions.

Who wants to start?

-Yes, I can start.

Clark County's at the highest taxable retail sales that we've ever seen.

We're near $60 billion in taxable retail sales.

Our spending has just been through the roof.

A lot of people in the COVID shutdown, they were just home.

You don't have too much to do when you're home, so what do you do?

You buy goods, you know, and then you buy a video doorbell to watch for your goods.

So we saw a lot of that kind of pick up during that time, and now we're seeing a lot of shift to services and kind of seeing a pivot there.

More people are going out to eat and spending on restaurants and they're spending on movies.

So there's a delicate balance between supply and demand when it comes to consumer spending, but we're seeing shifts and ultimately, I think we're going to see a slowdown in consumer spending as it kind of starts to stabilize.

-What concerns me, like the April numbers on this was, you know, consumer spending was up .7% but wages overall were up .4%.

So they're spending, but what are they using that-- where are they getting that money?

It's coming out of their savings in one way or another whether it's on a credit card, eventually that comes out of your savings, or you're using your savings to spend on that.

That's where this firepower that the consumer has, or at least psychologically feels, because they've gotten potentially a pay wage or wage bump in the last year or so, but in reality it's a negative because unless you're in very specific industries like leisure and hospitality, otherwise you're actually losing purchasing power because of inflation.

-And what makes it difficult, if I could add to what Andrew said which is so true and what Melanie said, what makes it very difficult to predict right now, Amber, is a lot of the strength that consumers have had during the pandemic is because of extra liquidity in the system from release bills whether it's President Trump, whether it's President Biden, just trillions of dollars, $6- or $7 trillion went into the system in all kinds of loans and grants and things like that.

So that flooded-- -And stimulus checks.

-And that stimulated demand for cars and houses when things were shut down.

Now as for services, as that starts filtering out the system, we'll see what happens with consumer spending.

What we do know are two things that Andrew touched on.

When you adjust wages for inflation, we're still back at early 2000 wages, late '90s when you factor that, you know, real versus nominal wage thing.

Then you look at that and look at credit cards.

I mean, we've been following the St. Louis Federal Reserve numbers recently, and credit cards, what they call "revolving debt" is starting to go up.

So people are still spending, but you know Americans, God forbid we don't use our credit cards, right?

So we've got a lot of things we won't know until maybe 9 to 10 months, 12 months from now how it's really going to lay out where we are.

-If you're going to get a new credit card, you may be facing higher interest rates as a result of what the Federal Reserve has implemented in order to try and decrease inflation.

What do you all think so far of the efforts the Federal Reserve has taken with interest rates to try and stop such skyrocketing inflation?

-I think at the Center, we think what they're doing now is the appropriate action.

We do think they're probably about three to four months, or maybe even six months too late in getting started on those interest rate hikes.

But they sure are making up time for that by raising interest rates, or the federal funds rate, by 50 basis points.

For the next two meetings there'll be at neutral, so 2%, which is what they call neutral, probably by the fall right after the June-July meeting, and then they have a meeting in September.

So what gives us a little concern is once they get to neutral and then we watch these inflation numbers, which tomorrow we'll get more data from the Consumer Price Index, is that enough to taper inflation off that it starts to come down in a reasonable manner that we can see and feel and measure?

Or do they have to go-- how much further do they have to go up above 2%?

We're forecasting that they'll have to get at about 3.25% on the federal funds rate, which means that your 30-year mortgage could easily go up to about 7%, which is at under 6 right now.

It could even go further than that depending on where the market is speculating on how much higher they have to go to get inflation under control.

And that goes to John's point about how this is a really delicate balancing act that they have to get between, you know, bringing down inflation, the thing we know, but the thing we don't know is all the impacts you have when you start to tighten up liquidity in the system.

-It's one thing to cool demand, it's another thing to destroy demand, and that's that balancing act.

And Andrew was right.

They started a little bit late.

They're going in the right direction.

Some of the forecasts that we've been putting together and looking at say, you know, inflation will get adjusted downward from-- in April it was at 7% to maybe 5 or so, 6 at the end of this year with the hope that by the end of 2023, we get back to that long-term rate which is 2-1/2 to 3.

-Which is considered acceptable.

-That's acceptable.

That's the theory at this point.

-Melanie, what do you think about what they have done so far, the Fed?

-Yes.

I think the Feds are going about it the right way in implementing chunks of rate increases.

Is it enough for a soft landing?

I don't think so.

I think it just went up so high, the market overheated quickly, so I think we're going to see effects of that.

Also, the market has a way of stabilizing itself, so we're seeing some positive feedback from the interest rates, but that could also be a result of just consumers kind of shifting their spending or shifting what they're focused on spending.

So there's a lot of different factors at play there.

-Explain to me "soft landing."

-Soft landing is when you're able to bring down inflation and kind of level out the economy by avoiding a recession.

-Okay.

How likely is it we face a recession, Andrew?

-Well, I think I probably align with what the consensus is among economists at the moment which is 30%.

But if you talk to Wall Street or the banks right now, they're forecasting over 50% of a recession.

What's interesting-- -Likelihood.

-Yes.

We're forecasting certainly a cooling of the economy in the Southern Nevada economy for the first half of next year is where we're seeing those numbers pop up, and that's why retail spending around the holiday season, watching those numbers is going to be really important.

Do consumers still have the firepower after summer vacation to go into the holidays and buy Christmas presents and Halloween costumes and host family for Thanksgiving the same way they've done in the past or would like to?

So in terms of whether there's a recession, I mean, it just depends who you talk to.

Again, I know also the words that you see that the Wall Street banks say, when they say there's going to be recessions, they also don't believe it's going to be deep.

So it's just how you define it, I guess.

-Do you share that take?

-Yes.

And again, underlying all of this, as we've talked about several times already, said already, it's Ukraine, the uncertainty global, political uncertainty which leads to economic uncertainty, how long that lasts, and the pandemic and different variations of COVID, if that can create any more concerns.

And it's all related to uncertainty.

And so that's what the Fed can't control.

They can control interest rates, they can control on the monetary policy side.

They cannot control, you know, Russia deciding now to go into another country or extending this further or some new variant coming.

So there's these things out there we just need to kind of try and work through.

We just have to understand there's a lot of these "known-unknowns" in the system right now.

-Very unique time.

-Just to touch on it a little bit, recessions are inevitable, they're cyclical.

So it's not a matter of "if" but "when," you know, how deep.

What effect it's going to have.

Those are the questions that are arising.

-And what is the difference between a future recession we may face here and the recession, the Great Recession of the late 2000s?

I think you hear recession here in Southern Nevada, and you think oh my gosh, am I going to go underwater on my home mortgage?

How different or deep, difference in depth, do you think it would be?

-So the numbers for consumers though are still pretty strong.

The balance sheet for the American consumer is still strong, and what you had in 2008 was a domino effect.

All these loans that were leveraged, bad loans that were leveraged then on other bad loans that were leveraged in the market for credit rating agencies and all that, so it was this domino effect.

With all the reforms that we've done in the last 10 to 12 years, hopefully that's not the case this time.

As Warren Buffett says, you never really know until the tide goes out who's swimming naked, quote, unquote, right?

So the point is we won't really know until we're in it but I think we feel pretty confident that the financial system is in a much better place, the American consumer is in a much better place, and that's why a lot of these predictions, doom and gloom predictions of a recession are more likely, you know, that if it does happen, it's not too long and it's not too deep.

-That was the housing market crash in the Great Recession.

But we are facing a housing crisis here in Southern Nevada with prices of both rent and home prices.

The Secretary of the U.S. Department of Housing and Urban Development was in town recently and said if these prices are not addressed, the homeless issue here will be similar to that of L.A. and San Francisco.

Are prices that expensive that that many people are going to become homeless, John?

-You know, the price of a new home right now, just combining both single-family or condo, I think the new home prices were $465,000 at the end of April.

It's like 425 for the resales, but 445 I think overall.

So that's a pretty high price, and an economy is essentially driven by a lot of low-wage, low-skill workers.

Let's be honest about it.

So you know, the cure for affordable housing, I talked to the affordable housing advocates about all of this and trying to figure out should we do more inclusionary zoning.

So we need to look at zoning laws in each of the cities in the county.

Should we soften that up a little bit to allow developers, to incentivize developers to build more affordable housing?

All that is really needed, but at the end of the day, the real answer is higher wages like this couple here.

We did not need to be here today, the three of us; they said it all.

-I found it interesting.

-The core issue is the wage issue, right?

So until we start dealing with questions of living wage, all these things that no one wants to talk about sometimes because they get politically kind of sensitive, we have to understand how wages come into play.

How do we build wealth and income so we can afford the house, because you're not going to solve the land problem, the water problem, or housing by nature, and it's going to get more expensive for demand, material costs, all these things.

But the wage thing, we can do something if we have the political will to do it.

That's the bottom line.

-I found it interesting.

They are in subsidized housing yet still paying $1,200 a month in rent and working full time as home health aides.

Melanie, there was a time not too long ago, a few years ago, where if you were renting a place and you saved up enough for a down payment, you could move into something similar and pay less mortgage than you were paying in rent.

Has that passed?

-I think in some degree, yes.

You know, everybody kind of strives for that American dream and owning their home, and especially as you're seeing rents increase.

You would just have a higher demand for well, we're paying this much in rent, can we just transition that into a house?

So in Las Vegas specifically, they're both going up at the same rate, and it makes it extremely hard to save for a house if you're paying that much in rent.

So there's some fluctuation there.

You may be able to, but it definitely makes it challenging.

-Let's talk about Las Vegas specifically.

Doing decent at the moment, would you say, or what's ahead though?

What's coming in 2023, in your opinion?

-So our forecast at the Center for Business and Economic Research, we see this year we'll still continue to grow and recover from the pandemic.

We're forecasting about 20% growth in visitations.

But we see a cooling effect, especially that first half of next year.

And then some of the things that give us pause, even with record gaming numbers, record taxable sales, and then April's visitation numbers which is all wonderful for this community and our economy, but what gives us pause is you look at the number of people that are coming from Southern California.

That number actually dropped in April.

If you look at the overall just convention attendance, it's still down 30%.

So even though conventions are rebooking, they're not bringing the same crowds that they used to have for that Monday through Thursday business that we rely on here for one-fourth of our workforce.

And then you also look at international travel.

That's still 38% below what it was pre-pandemic.

So we're forecasting for Las Vegas, the economy next year, it will kind of be basically even.

We're not forecasting a recession per se, but we're forecasting a cooling effect in terms of the growth we're seeing currently.

You mentioned housing, I'll just quickly throw that in.

We are forecasting that there will be a small correction in the housing market here in Las Vegas because demand will come down because of interest rates.

Of course we're also watching the California market because if you can sell your home for more in California and move here and get more, that also comes up.

Anyway for the Vegas economy, we certainly see for the short term, we think it's going to be a good summer but we think going into the fall and early next year, things will cool.

-Do you see it similarly, John?

And how well prepared do you think Vegas is for the cooling off, possible cooling off?

-You know, I totally agree with Andrew.

He's absolutely right in that.

How well prepared we are.

I thought we would have been prepared to deal with lack of economic diversity after the last Great Recession, but as soon as things got-- everyone started feeling way better, we forgot about it and we got distracted by the latest shiny object in the room so to speak in terms of our economy.

I think this time though, the leaders in our community, both the political and business leaders are saying, you know, let's face it.

We have one of the most, if not the most, vulnerable economies in the country.

What do we need to do to reduce that vulnerability?

How do we increase resilience?

But that takes time, right, and requires what I like to call time, talent, treasure and political will.

That's what's going to take time.

In the meantime, we need to watch what consumers are doing at the end of the day, and I had these discussions with my more conservative friends.

The real job creators in this economy are not small businesses, They're not the big businesses or even medium-sized businesses.

They're consumers with consumer spending power.

If consumers can't spend or they're feeling under duress as Andrew was saying because the cost of living is too high, maybe don't travel as much, the cost of gas-- and this is just not Las Vegas.

We depend on the kindness of strangers, right?

They come here and spend money.

But if they're feeling a little, you know, uncertainty, then we have to deal with that.

So it's a question of just we don't know yet.

We just have to really track what's going on and understand that listen, we're in a whole new world.

The pandemic, not only for Las Vegas exposed a lot of structural issues in the U.S. economy.

-Melanie, what do you think we are facing?

-Yes.

Just to build off on that, I mean, Andrew and John both made great points.

We have a lot of dependence on tourism, and I think that our eyes were wide open during COVID that we need to diversify, and we need to develop different industries here.

A big aspect of that will be kind of developing that workforce as well.

But I think we have a pretty strong roadmap of where we want to go as an economy and we have kind of plans in place.

We have the LVGEA working with local jurisdictions to submit a Build Back Better Grant which even if that grant doesn't come through, we have those plans in place for how we can bring in advanced manufacturing industries as well as develop the workforce.

So the roadmap is there, and we also have $25 billion in the development pipeline between planned and under construction projects.

Do I think all those are gonna happen?

Probably not.

But the growth potential is there, so being able to just kind of witness where Las Vegas is going to go is going to be interesting.

-Thank you all for joining us.

For any of the resources discussed on this show, visit vegaspbs.org/nevadaweek.

You can also find us on Facebook and Twitter @nevadaweek.

Thank you for watching.

I hope to see you next week on Nevada Week.

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