The Reno area continues to enjoy one of the best economies in the nation, according to noted economist Christopher Thornberg, Ph.D. With the technology corridor continuing to expand into the Reno area and attracting record venture capital, with rising incomes and substantial tourism numbers — all indicators point to continued growth. However, like many cities in the West, a lack of available housing combined with a labor shortage will limit how fast that growth occurs.
Dr. Thornberg, the founder of Beacon Economics, presented his findings during the First Independent Bank Economic Forum held on Wednesday, February 8, 2023. Here are the highlights of Thornberg’s discussion.
Despite what you may have heard, Thornberg is steadfast in his belief that there will not be a recession in the near future. He encourages the public to compare the narrative to the economic reality. Recessions are most often characterized by a time when the economy is not living up to its potential and not producing as many goods and services as possible. Another sign of a recession can be the number of people who want a job but can’t find one. Thornberg says the indicators show there is no slack in industrial production and the national unemployment rate is very low at about 3.4 percent - the lowest number since 1969. Thornberg says the fundamentals of our economy are solid.
Reno’s Technology Sector
Reno’s ‘Startup Row’ continues to attract venture capital and deals. In 2021, Startup Row attracted more capital than ever - exceeding one billion dollars among a handful of companies working in electronics, financial software, alternative energy, media and information services. The second-best year in venture capital funding was last year (2022), with about 400 million dollars flowing into the region. Thornberg believes the continuance of the tech corridor moving up Interstate 80 and into the Reno area is doing wonders for the Northern Nevada region. It is an example of what he calls the ‘professionalization’ of the Reno economy.
The housing shortage is a problem in many cities in the West, including Reno. Although Thornberg believes Reno’s economy has the potential to grow rapidly, he says it won’t be able to tap into that growth until there is an additional housing supply. What complicates the housing issue in Reno is what Thornberg sees as the collapse in ‘filtering.’ Filtering occurs when housing is more plentiful, allowing well-heeled buyers to purchase new homes and move out of their old house purchased by someone else. With a lack of new housing supply and higher prices and interest rates, understandably, people of all incomes stay put. Thornberg says, “The problem with housing in 2009 was that there were no buyers, the big problem with housing in 2023 is that there are no sellers.” This scenario also signals builders to construct more entry-level homes, such as townhouses and condominiums.
Further complicating the housing issue is the continued population growth in Nevada. Washoe County grew by 4.4 percent over two years ending in 2021 and nearly 10 percent (9.6%) over the past five years. During that same two-year period, Lyon County grew by 5.9 percent and 15.4 percent in the last five years.
Across the nation, most workers see a significant hike in weekly earnings. However, according to Thornberg, the wage hike in Reno began several years ago - in 2018 - just as more tech companies began relocating to the Reno area. In 2021, median household incomes in Washoe County went above $75,000. By comparison, household income in 2017 was about $62,000. The most significant gains in annual wages occurred year-over-year (2021-2022) in Mining (19.6%), Administrative (8.8%), and Leisure/Hospitality (8.7%). The average wage increase across all Washoe County industries was four ( 4) percent.
People are traveling again. Monthly passenger counts at the Reno Tahoe airport are almost back to the all-time high from July of 2021, when 200,000 people per month passed through the facility. Reno hotels saw a significant rise in occupancy year-over-year (2021-2022), up 6.3 percent, and the average cash rate is up to nearly $150 a night. On the gaming front, 2022 was among the best year ever for gaming revenues in Washoe County, exceeding one billion dollars.
Businesses can’t hire enough people. Labor shortages are now endemic, according to Thornberg. The most recent numbers released in January show a national unemployment rate of 3.4%. Thornberg says the last time the unemployment rate was this low was 1969. In his words, this is one of the tightest labor markets this nation has ever seen. If you’re a business owner relying on lower-skilled workers, the cost of running your business will continue to go up. Due to the labor shortage, Thornberg expects more firms to invest in software and technology that allows them to run their business with fewer employees. “No matter where you look in this nation, red state, blue state, coastal, inland, rural or urban, they all have one thing in common - help wanted signs,” says Thornberg.
Thornberg says the labor shortage relates to simple demographics. “Many baby boomers came from families with ten kids, and when they decided to have children, they had one kid. And for every baby boomer that retires, one Gen Z is coming into the workforce. There’s simply no workforce growth,” says Thornberg.
Employment growth year over year is another indicator of Reno’s strong economy, which in Thornberg’s view, is doing exceptionally well. He mentioned Texas as the state with the most significant employment growth rate at 5 percent. However, by comparison, Reno’s growth rate in 2022 was an impressive 4.6 percent. Sectors that led the way include Leisure/Hospitality (up 15.6%), Manufacturing (up 9.7%, up 113% over five years), Construction (up 7.4%, up 51% over five years), Information (up 6.9%, up 29% over five years) and Logistics (up 2.7%, up 17 % over five years).
First Independent Bank
First Independent Bank, a division of Western Alliance Bank, Member FDIC, delivers relationship banking that puts clients at the center of everything. Founded in 1999, First Independent Bank offers a full spectrum of tailored commercial banking solutions delivered with outstanding service. With offices in Reno, Sparks, Carson City and Fallon, First Independent Bank is part of Western Alliance Bancorporation, which has more than $70 billion in assets. Major accolades include being ranked as a top U.S. bank in 2023 by American Banker and Bank Director. As a regional bank with significant national capabilities, First Independent Bank delivers the reach, resources and local market expertise that make a difference for customers.