Washoe County Commercial Building Permit Trends

Our most recent industry index for the construction industry in the Reno MSA showed that while the index increased slightly between December 2015 and January 2016 (0.35%), it actually decreased by 5.31% compared to January of previous year.[1]  Historical graph for the construction index is shown below, showing the index declined since July 2015 with a slight increase in January 2016.

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The major reason for this decline, as shown in the table below for January 2016 is a decline in the number of commercial building permits between December 2015 and January 2016.  Both the number of commercial building permits and commercial permit valuation declined between January 2015 and 2016.

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The graph below shows Washoe County’s number of commercial permits issued and the value of these permits.  The data is the graph is monthly moving average (MMA) data, which means that for each month, the data is the average of that month and the 11 previous months.  Based on MMA data, the graph shows a peak in commercial building permits and permit valuation in July 2015 (consistent with the index) before falling through January 2016.  Commercial building permit data has been released for all three jurisdictions (Reno, Sparks, and Washoe County) for February 2016 showing a total of 13 building permits issued and valuation of $11.0 million.  This is greater than in terms of the number of building permits of 9 in January 2016, but lower in value compared to $15.1 million.  March 2016 commercial permit data has been released for the City of Reno only, showing 26 building permits valued at $15.2 million.  As a result, March 2016 will exceed both January and February permits data.

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While of some concern, the decline in the number of commercial permits needs to be considered in its historical context.  Permit data for 2014 was at the highest level since 2008, just before the full impact of the recession in the region.  There were 240 commercial permits valued at $365.4 million issued in 2014.  In 2015, 196 permits were issued with a value of $231.9 million, representing another strong year of activity, but lower than 2014.

The total number of permits in January and February 2015 of 34 was higher than the 22 permits issued in the first two months of 2016.  However, the valuation of these permits in the first two months of 2015 was $20.5 million compared to $26.1 million in 2016.  As a result, while our late 2015 and 2016 commercial permit levels have been lower than the stellar commercial permit year we had in 2014, these levels are still the highest commercial permit activity the region experienced since 2009.  If March 2016 City of Reno activity is any indication, this activity will continue to improve.

On the residential construction front, single family permits continue their increase since the bottom in 2010-2011, with permit activity increasing in terms of both the number of permits and value of permits issued, as shown below on an MMA basis.

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Multi-family permit activity spiked in 2015, before declining to permit valuation levels seen during the real estate boom.  The decline in the number of permits issued is attributed to normal construction cycles of the large number of multi-family projects approved and planned for the area, not because of lack of demand for these projects.

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[1] Please find our economic and industry indices on our website: http://ekayconsultants.com/research.

Introducing the Reno MSA Leading Economic Index

Economic indicator data published in our previous blogs is useful in understanding changes occurring in each individual area, but do little to provide a picture of the overall economy and its changes over time.  Economic indices, which combine multiple indicators into a single number, can represent either the current state of the economy (coincident index) or future economic changes (leading index), providing a clearer picture of the economy and its trends.

Ekay Economic Consultants, Inc., in cooperation with the Center for Regional Studies at the University of Nevada, Reno, is pleased to announce the release of its Leading Economic Index and Coincident Economic Index for the Reno MSA area.  The indices are referred to as RLI and RCI, respectively.  Latest results of the two indices are summarized below, along with a graph of their historic changes.  For more details about index indicators, values, and methodology, please click here.

-Reno MSA Leading Index (RLI) increased between September and October 2015 (0.48%), indicating expected growth in the regional economy over the next 6-12 months.  This is the 41st consecutive increase in the index since May 2012.

-Reno MSA Coincident Index (RCI) increased between October and November 2015 (0.24%), (most recent data), verifying that the current economy continues to expand.

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Reno MSA Leading Economic Index and Coincident Economic Index

ANALYSIS OF NEVADA COMMERCE TAX IMPACTS BY INDUSTRY

Ekay Economic Consultants, in cooperation with the Center for Regional Studies at the University of Nevada, Reno, recently completed a study of the impact of the new Commerce Tax on business entities operating within the state of Nevada.  The study found that the tax will impact approximately 9.2% of all business entities and generate approximately $142 million in 2016 dollars.  The tax is also estimated to provide a $71 million credit, starting in fiscal year 2017, against Modified Business Tax liabilities estimated at $562 million per year given changes to the MBT contained in SB 483.  For detailed findings, methodology, study limitations, and other information, click on the link below to access the full study:

Analysis of Nevada Commerce Tax by Industry-July 2015

Signs of Recovery: Washoe County Building Permits Are On the Rise

Even before Tesla announced it will build a giga-factory in Storey County, creating as many as 6,500 direct jobs and possibly 16,000 indirect jobs (according to a report by the Governor’s Office for Economic Development), Washoe County’s real estate market was showing signs of recovery.  One of the biggest indicators of growth in the real estate market is the number and valuation of building permits in the area.  Building permits are required to construct new buildings and to make certain improvements to existing properties.

These permits are issued by local governments prior to construction and are a good leading indicator of actual construction to take place in the future.  Washoe County’s growth in building permits since the recession is a good sign of the region’s economic recovery.

Single family permits in Washoe County peaked in 2005 with 5,535 permits and a permit valuation of $957.7 million.[1]  As the graph below shows, the number of permits and valuation declined significantly for all areas of Washoe County (Reno, Sparks, and unincorporated Washoe County which includes Incline Village, Sun Valley, Wadsworth, etc.).  The number of permits hit its lowest level in 2010 with 477 permits issued, a 91% decrease in the number of permits over 2005.

Building permits increased by 156% between 2010 and 2013 (the last full year for which data is available), from 477 to 1,221 permits.  Building permit data for 2014 is available through September only; using historical growth in permits between October and December, we estimate approximately 1,450 building permits will be issued in 2014.  This is a 19% increase over 2013.  Building permit valuation followed a similar trend to the number of issued permits.  While the 1,450 permits expected for 2014 is much lower than the peak of 5,535 in 2005 or even the years prior to the real estate boom, four years of growth since 2010 indicate a positive trend for this real estate market component.

 sf permits*2014 data through September 2014 only, full year data is estimated using historical end of year percentages.

While the single family market saw a strong positive growth trend through 2005, followed by a steep decline through 2010, and some recovery to date, the multi-family’s market’s path was a little more varied.  This is due to the less consistent nature of the multi-family market, where large projects in some years can shift trends significantly.  While the number of single family permits grew, multi-family permits dipped in 2003, before reaching the peak of 146 permits in 2004.  Building permit valuation did not peak until 2006 with a value of $103.3 million.

Like the single family market, building permits for multi-family units declined through the recession, though the bottom of the market was not reached until 2011 with only two permits issued in that year.  This was an almost 99% decrease in the number of permits issued over 2004.

The number of building permits issued for multi-family projects showed a consistent positive growth trend since 2011, with approximately 71 building permits estimated through 2014, an over 3,000% increase over 2011.  Building permit valuation is expected to reach $79.3 million in 2014.  While still below peak levels, the market has shown three years of significant positive growth, indicative of recovery.

mf permits*2014 data through September 2014 only, full year data is estimated using historical end of year percentages.

As with the multi-family market, large commercial projects in certain years can skew the market trend, making growth and decline trends less smooth.  However, overall, a trend similar to single family and multi-family markets is shown by the commercial market.  The number of commercial permits issued peaked in 2006 with a total of 457 permits with a value of $509.2 million.  Commercial permits did not hit bottom until 2010 when 99 permits were issued with a value of $53.4 million, a 78% decline in the number of permits over 2006.  Permit valuation decreased further in 2012 to $44.7 million, though a higher number of permits (140) were issued in that year.

The number of commercial building permits issued increased steadily since 2010, with approximately 242 permits estimated for 2014 with a value of $290.1 million.  This is a 144% increase in building permits since 2010.  While this amount is still below the peak number of building permits issued in 2006, the commercial market has experienced positive growth for four consecutive years, indicating a recovery in this market.

 comm permits*2014 data through September 2014 only, full year data is estimated using historical end of year percentages.

Overall, the steady growth in building permits and permit valuation in all three components of the real estate market show the increasing confidence by builders in the recovering economy and the increases in demand for new construction from residential and commercial buyers and lessees.  The growth in the number of building permits can be seen in the remainder of the real estate market.  Construction employment in Washoe County increased by 16% between 2011 and 2014 (1st Quarter) from 8,697 to 10,125.[2]  Median single family home prices also increased from $145,000 in the 1st Quarter 2012 (lowest price through recession) to $248,000 in 3rd Quarter 2014, an increase of 71%.[3]  While it is unlikely pre-recession, boom, construction levels will be reached in the near future, the market is recovering steadily, to the benefit of the region’s economy.

[1] All building permit data in this blog from City of Reno, City of Sparks, and Washoe County websites.

[2] Nevada Department of Employment, Training, and Rehabilitation.

[3] Center for Regional Studies, University of Nevada, Reno.

Western Nevada Regional Wages Post Recession

Last week’s blog discussed the evolution of Western Nevada region’s[1] post recession economy in terms of its industry employment.  The blog discussed that in 2002, the region’s five largest employers were the Gaming, Retail, Health Care, Construction, and Manufacturing industries.  These industries made up 47% of all regional employment.  By 2013, this mix changed to Retail, Health Care, Gaming, Manufacturing, and Bars and Restaurants.  These industries made up approximately 46% of total regional employment.

[1] Includes Carson City, Douglas, Lyon, Storey, and Washoe counties.

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Note: It should be noted that this list does not include all jobs in the region, a number of industries with low percentage of employment in the region (such as Mining) are excluded from the table.  The table is sorted by 2013 employment amounts.

As mentioned in last week’s blog, it is not only the number of jobs created by these industries that determines the region’s recovery and future success.  Wages paid for new jobs are also important.  For example, the Retail industry is now the biggest employer in the region.  However, wages paid by the Retail industry were $13.91 per hour in 2013, an 11% increase over the 2002 wage of $12.57.  Given a rule-of-thumb 3% annual inflation, the estimated 1.0% average annual increase for this industry over an 11-year period is well below inflation.  Additionally, this wage is less than the average hourly wage in 2013 for the State of Nevada of $21.22.  While it creates jobs and is necessary to provide services to the growing population, the Retail industry may not be an ideal candidate to target for future growth.

The Health Care industry, the second largest industry in the region, on the other hand had an average hourly wage of $25.13 in 2013, above the average State wage of $21.22.  The wage increased by an average of 2.3% per year since 2002, slightly lower than the inflation.  Giving the high wages in this industry, its growth through the recession, and its expected growth in the future, this is a good industry to target for expansion in the region.

The Gaming industry, the third largest industry in the region, had an average wage of $13.34 in 2013, an increase of an average of 1.7% per year since 2002, lower than the average inflation for the period.  Given this industry’s historic decline in employment, lower than average wages, and lack of expectation for future growth, this is not a good industry for targeted regional expansion.

The graph below shows average hourly wages for various industries in the region.  The graph shows that the average wages for the Management of Companies and Enterprises industry has significantly exceeded wages for all other industries, despite fluctuations between 2002 and 2013.  The average wage in 2013 for this industry of $60.10 was significantly higher than the State average of $21.22.  Wages in this industry grew by an average of 3.0% per year since 2002, in line with inflation.  This industry has the lowest employment of all regional industries considered in this analysis.  However, a positive growth trend exists for this industry, having gained 1,500 jobs or 82% of its employment between 2002 and 2013.  This industry deserves a second look to determine whether anything can be done to make the region more attractive to companies in this industry, thus encouraging future employment growth.

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Other companies with wages of note are the Health Care industry, discussed above, and the Finance and Insurance; Professional and Technical Services; Government; Manufacturing; and Construction industries.  All of these industries had an average wage greater than the State average in 2013.  Similar to the Management of Companies and Enterprises industry, these industries should be considered for expansion, with an analysis for each industry to determine whether the region can be made more attractive for that industry to grow and hire more employees.

Western Nevada Regional Employment Post Recession

For decades the gaming industry dominated the Northern (and Southern) Nevada economy.  Since 2001, increased competition from legalized gaming in California and across the country, shifts in consumer preferences, and economic conditions led to a decline in demand for gaming services, with a resulting decline in gaming employment.

The graph below shows how these changes, along with the recent recession have reshaped the mix of industries in the Western Nevada region.  The Western Nevada region includes Carson City, Douglas, Lyon, Storey, and Washoe counties.  These counties are closely tied through employee/resident commuting patterns and industry relationships.  It should be noted that only major industries are included in the analysis.  Industries with a low employment impact, such as Mining are excluded from the analysis.

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The graph shows that the Gaming industry had the highest number of employees in the region’s economy (13% of all region employees were employed by the Gaming industry) in 2002.  The Retail industry was second in terms of employment at 10% in 2002.  Health Care was another significant industry, with 8.4% of total employment, followed by Construction and Manufacturing tied for fourth place with 7.7% of total employment.

During the boom years, the region’s Construction industry grew at a high rate, becoming the third biggest industry between 2004 and 2006, peaking at 29,176 jobs and 10.0% of regional employment.  All industries grew between 2002 and 2006, with the exception of the Gaming industry, which saw a loss of 4,100 jobs during this period, a loss of 12.0% from its 2002 levels.

The Great Recession had a significant impact on the structure of the region’s economy and employment.  The fastest growing industry in terms of employment prior to the recession, Construction, saw a significant decline in employment, losing over 17,100 between a peak of 29,200 jobs in 2006 and 12,000 jobs in 2013, a loss of almost 60% of jobs.  The industry fell from third in terms of percent of total regional employment, to fourth from the bottom, with only Professional and Technical Services, Finance and Insurance, and Management of Companies and Enterprises industries having fewer employees in 2013.  Until a slight decline in Professional and Technical Services employment in 2013, Construction was the third lowest industry in the region in terms of employment.

The Gaming industry continued its decline, losing approximately 8,300 jobs since 2006, or 27% of its employment.  It is currently the third biggest industry, though it is still trending downward.  Other industries impacted by the recession include the Government industry which saw declining revenues and resulting lay-offs through the recession, losing approximately 2,000 between its peak employment in 2007 (19,237) and lowest level in 2012 (17,234), a loss of 10.4% of jobs.  The Finance and Insurance industry also lost jobs during the recession with a decrease of 1,400 jobs, or 17% of industry employment.

The Retail industry lost 2,100 jobs between 2006 and 2013, but it remains the number one industry in the region with 28,983 jobs in 2013.  The Bars and Restaurants industry lost some employment at the beginning of the recession, but has recovered its pre-recession employment levels and is the largest generator of taxable sales revenue in the region.  Also of interest is the reemergence of the Manufacturing industry post-recession.  It is now the fourth biggest industry in the region.

Of special interest, however, is the industry that grew through the recession, the Health Care industry.  This industry gained 2,700 employees since 2006 and is now the second biggest industry in the region.  With the changes in the changes in the health insurance requirements and an aging population this industry may become the biggest in the region in the future.

The recession had a significant impact on the region, changing the mix of employment from the top five 2002 industries of Gaming, Retail, Health Care, Construction, and Manufacturing to 2013 top industries of Retail, Health Care, Gaming, Manufacturing, and Bars and Restaurants.  Our economic development strategies must adjust to align with these changes.   As the region emerges from the recession, of importance are not only industries creating jobs, but the wages paid to employees in these industries.  The goal of economic development is not only to create jobs, but to create jobs with high wages, which creates a benefit for the entire region.

Join us for our blog next week for a look at wages associated with the region’s growing industries.

GDP, Personal Income and Growth-Part 2

This is a discussion of Part 2 of the GDP, Personal Income and Growth study first discussed two weeks ago.  For this part of the study, we compared percent changes in Nevada GDP to those of each component of Nevada personal income between 1970 and 2009. The model shows that a 1% increase in per capita net earnings increased Nevada GDP by 0.7%.  However, a 1% increase in per capita current transfers decreased Nevada GDP by 0.14%.  A 1% increase in per capita dividend, interest and rental income decreased Nevada GDP by 0.02%.  This is an interesting finding and a useful one as the State continues to develop its economic growth and development strategy.

The analysis shows that job creation will help drive the health of this economy. However, attracting a population which receives its income from investments, governmental or retirement payments at the expense of jobs  may lead to the decline of State GDP.

For detailed study results, please click here.