Nevada is now No. 1. But don't expect to see fireworks going off on the Las Vegas Strip to celebrate this victory -- that top spot is for unemployment, according to the latest numbers from the Bureau of Labor Statistics.
That's right, with a state unemployment rate now at a staggering 14%, Nevada tops previous league leader Michigan, which currently sits at 13.6%.
While it's unfortunate that Nevada ended up in such a predicament, it's not as if it's a coincidence. There are steps the state could have taken a long time ago that could have helped moderate this downturn, but the state missed its chance. And as a Las Vegas resident, I've had a front-row seat to see the consequences of this inaction.
A two-note march
No matter where you are in Nevada, it's hard not to be bombarded with the state's big breadwinner: casino resorts. According to the U.S. Bureau of Economic Analysis, 14.2% of Nevada's total GDP in 2007 came from "accommodation and food services" while another 2.1% came from "amusement, gambling, and recreation." That compares with a 3.3% contribution from those combined sectors for the U.S. as a whole.
And certainly if you take a look at the companies headquartered in Nevada, you get a similar gaming-heavy story. Las Vegas Sands (NYSE: LVS), Wynn Resorts (Nasdaq: WYNN), and MGM Mirage (NYSE: MGM) are all massive casino owners, while International Game Technology and Bally Technologies both provide gaming technology for the casinos.
In fact, among the top five publicly traded companies headquartered in Nevada, only NV Energy isn't in the gaming business. But casinos require a lot of power to keep running 24/7, right?
The other half of Nevada's economic tag team is construction. In 2007, that sector accounted for 8.7% of Nevada's GDP versus 4.5% for the U.S. as a whole.
How it went out of tune
Whether it was the construction of megaresorts like MGM's CityCenter or the breakneck speed at which residential housing went up, the heavy construction presence in Nevada showcased the state's blind faith in its "if you build it they will come" attitude. Few committed efforts were made to attract new industries and so the state was left hugely exposed to nationwide economic conditions and consumer spending, not to mention the possibility of overbuilding.
As the numbers now show all too clearly, that risk has come home to roost for Nevada. The gaming industry -- which some people tried to argue was immune to economic cycles -- has taken a bad hit and the real estate and construction industries are in tatters.
While some of the Nevada-based companies have been caught with their pants down -- such as MGM, which has the lion's share of its casino portfolio in Nevada -- others, like Las Vegas Sands and Wynn, have shifted much of their focus out of the U.S.
On the construction side, while the Cosmopolitan project is plugging along on The Strip, and there's some hope that construction will resume on Fontainebleau, it doesn't seem all that likely that major new casino projects will break ground in the near future. Driving around Las Vegas at least, it's tough to throw a rock without hitting a vacant house or strip-mall space. In short, it seems a bit loopy to expect that construction will find its way back to prerecession levels anytime soon.
A lesson for the rest of us
Let's not let Nevada's tale of woe go to waste. Over the past few decades, the U.S. as a whole has increasingly poured its resources -- both financial and human-capital -- into the financial sector. Between 1997 and 2007, the finance and insurance sector of the economy grew from 4.3% of GDP to 8%.
We have of course seen the repercussions of this growth. Banks like Bank of America (NYSE: BAC) and Citigroup (NYSE: C), which used to be boring, dependable cornerstones of the financial system, have become so large and unwieldy that we now deem them "too big to fail." Swashbuckling investment banking firms like Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS) are now taking a huge role in both our financial system and the economy as a whole. And with huge paychecks in hand, all of these financial giants are able to lure the best and brightest from our universities.
And what has the economy gotten in exchange for all of this? Hell.
In Nevada, it seemed like almost everyone buried their heads in the sand and hoped that an unsustainable status quo would be A-OK if left alone. That plan didn't exactly work out. Though the financial reform bill takes some baby steps toward reducing risk in the banking system, the package is a gift to the bankers that will largely keep the status quo intact.
As a country we need to do what Nevada hasn't been able to; that is, encourage entrepreneurs, foster new industries, and work toward a more robust, nimble economy that can better navigate the inevitable economic cycles.
Now that you know what I think, I want to know if you think we can learn from Nevada's example. Scroll down to the comments section below and share your thoughts.
Not convinced that U.S. companies have what it takes to power your portfolio? Maybe it's time to look abroad.
