Las Vegas has the potential to be a helpful resource when attempting to determine whether the U.S. economy is expanding or contracting. This is because Las Vegas is a mecca of business conferences. Business travel generates a tremendous amount of traffic into the city. Thankfully the Las Vegas Convention and Visitors Authority tracks a variety of data and publishes it to the public each month.
As an investor one of the pieces of information you clamor for is insight into what is happening ‘beneath the surface’ of economy. Businesses across the entire spectrum of industries throughout the economy use Las Vegas as a conference destination. This broad base provides a platform in which to evaluate potential shifts in business spending. If a business knows of or is worried about slow down, one of the easiest things for it to cut is travel expenditures. If travel to Las Vegas isn’t growing or is contracting on a year-over-year basis, then we ought to be worried about the overall economy’s well being.
In the chart below we observe year-over-year visitation changes on a monthly basis at the period before, during and after the Great Recession. It was not until September of 2008 until the bottom completely fell out of the market. Even back to 2007 you can see shifts in visitation. The growth is tepid. In 2008 the trend acerbates, especially once the month of June hits. This is a clear sign that businesses knew, or at minimum, were very worried about the economy. If you were an investor and looking at this data, it could have helped you take some money out of the market in light of this warning sign.
Where do we stand in our current environment? The chart below illustrates for us the change in year-over-year visitation per month from January 2014 until April of 2016. It’s certainly not the picture we saw in 2007 or 2008. That’s the good news. The news that is more uncertain is that we are seeing some signs of weakness or at least tepidness in growth. If you were to average the changes in 2014 from the prior year, you would arrive at an annual change of + 3.7%, in 2015 the rate dropped to +2.9%, and so far in 2016 the average stands at +2.7%. While these figures do show growth, the rate that which growth is occurring is slowing.
While we typically do not expect a 2008-2009 like recession to hit, when a slow down (recession) does occur, we should expect to be forewarned by a deceleration in visitation to Las Vegas. Business travel, which makes up a significant portion to Las Vegas, will flash signs of either minimal to flat growth or it will drop into the negative range. While one month will not make or break the case for expansion or contraction, multiple months showing growth, decline or flat-lining are not to be ignored.