Those looking for glimmers of a recovery in the mixed messages the U.S. economy has been sending out had to be disappointed last month with the news that Bank of America lost a cool billion in the third quarter. More bad mortgage and credit card debt. A reminder that the housing crash and a dismal employment market continue to weigh heavily on consumers.

Nowhere is Main Street’s pain being felt more acutely than on Las Vegas Boulevard. The Strip is five or so miles of the most intensively capitalized tourist development in the world, and the recession is beating it about the ears. Visitation has been in decline for 15 straight months and 18 of the last 20. This year it has been tracking about 6 percent below last year, when it was down 2.3 percent. The Las Vegas Convention and Visitors Authority expects visitation in 2009 will be down 4 to 5 percent. That might be optimistic.

In the convention segment, the lifeblood of Strip hotel revenues, the numbers paint an even bleaker picture. Through the first eight months of 2008 the city hosted about 350 fewer conventions and meetings than in 2007. Through the first eight months of 2009 it was about 3,000 fewer. Convention attendance, which was down about 5 percent in 2008, was tracking at minus-30 percent through August.

Not surprisingly, hotel occupancy citywide is down (about 6 percent overall, 8.3 percent midweek). The occupancy rate through August stood at a very un-Vegas-like 82.7 percent. The average daily room rate was down by 25 percent.

In April, historically a busy month on the Strip, a hotel room in 2007 would have commanded on average $146.53 a night. Last year it went for $135.67. This year, $94.08. That’s about a 36 percent markdown in two years. The result is that revenue per available room, the measure of a hotel’s financial performance, is down about 40 percent. Through the first eight months of this year, RevPAR is down to $76.56 a night. That’s a decline of 30 percent compared to the first eight months of 2008. At that rate, conceptually speaking, a 2,500-room hotel would generate $42 million less in revenue this year than last.

“You take Resort A with an average room night that was in the $200 range midweek, now it’s in the $80s, the very nature of that means the total revenue mass has declined,” explains Harvey Perkins, senior vice president of Spectrum Gaming Group, an industry research and consulting firm based in the Atlantic City area.

“And what it means,” he says, “is a lower-quality gaming customer.”

Considering that most of the rooms built in the last five years decidedly target the high end (as will most of the 15,000 or so due to come on line between now and 2011), this is a real problem. For one thing, the economy appears to be altering the character of the average Strip visitor in profound ways.

In 2008 the number of air passengers in and out of town declined 7.7 percent, the first year-over-year drop since 2002. Daily auto traffic was off last year, too, by 5.3 percent. The difference this year is that arrivals by car are back strong - through August they’re up 4.2 percent among those coming from California on I-15 - but air traffic has plummeted again, this time by more than 11 percent. The market appears to be moving closer to its drive-up segment. There isn’t much to say about this that’s conclusive, not yet anyway. But opinions vary.

“The statistics are pretty clear: Visitation to Las Vegas is down, but the spending per visit is down even more dramatically,” says Professor of Economics William Eadington, director of the Institute for the Study of Gambling and Commercial Gaming at the University of Nevada, Reno.

Perkins says, “I was at a hotel on the Strip recently and I had never seen so many people in my life checking in with coolers. Three or four years ago you never would have seen that anywhere. It’s a completely different customer base on the Strip than ever before, and it’s a challenge for operators to try to maintain service levels and the quality of the offering and still maintain profits. It’s really indicative not only of the Las Vegas market but the Atlantic City market as well.

“In the past you’ve always had hotels that had a value segment and a luxury segment. The problem now is that the value segment is at a much lower point. And the luxury customer, who was spending $450 or $500 a night, now wants to pay less. It’s very tricky, it’s a slippery slope, to try to retool your fixed costs with the guests you have today. Because that Bellagio-style customer is still coming, but there are less of them.”

Gambling revenue has not escaped unscathed.

The first signs of trouble were apparent as early as November 2007, when GGR plummeted 19 percent year over year. That December it bounced back, but the difference was less than 1 percent. In January 2008 it was down 1.3 percent, and that was the start of 20 straight months of year-over-year declines, which have continued through August of this year (the latest month of results available from the Nevada Gaming Control Board at press time). Strip GGR was down 10.6 percent in 2008. Through August of this year it is down 13.6 percent. August was down 9 percent, which doesn’t look all that bad on the face of it (July was down 11.1 percent), until you factor out baccarat, hen GGR plummets to minus-19 percent year over year.

“The thing that I’ve been most surprised by is just the continual decline of the market,” says Anthony Marnell, CEO of the $1 billion M Resort, which opened at the far south end of the Strip in March. “Where’s the bottom? There is no bottom. The bottom hasn’t hit yet.”

Total volume of play is another telling symptom of the malaise. Taking the year from September 2008 through August 2009, the contrast with the previous 12 months is glaring. Excluding race and sports betting (which was down about 28 percent) the volume of play at the tables on the Strip declined an estimated 10.2 percent. Play at the slot machines was down a whopping 16 percent. (Statewide table volume was down about 10.5 percent, slot volume was down about 12.3 percent.)

Las Vegas Convention Center

‘RESET BUTTON'

For Jeremy Aguerro, principal of Applied Analysis, a Las Vegas-based economics research and advisory firm, the conclusion is simple and stark: “The era of the megaresort is over.”

On the Las Vegas Strip more than $30 billion has been invested over the last decade or so, most of it debt-funded. Robert LaFleur, an analyst with Susquehanna Financial Group, calls it “the theme-park dilemma”. And he has pointed out that since 1990 the amount of capital deployed on the Strip had grown tenfold against only a fivefold increase in profits.

“We spent the last 15 years building hotel rooms for the sake of hotel rooms,” Aguerro says. “Supply created demand. We had greater capital deployment than we had money coming in. But it’s a lot easier to spend money you don’t have than it is to pay it back. For Las Vegas, for Southern Nevada as a whole, this is the No. 1 challenge. The balance sheet is upside down. We’re paying for that as a nation and as a community.”

What seems clear enough is that never have the city’s fortunes been more dependent on the national economy.

For the Las Vegas Convention and Visitors Authority, two indicators are of particular interest: consumer confidence and unemployment. Neither has been very comforting lately.

The Conference Board’s Consumer Confidence Index, compiled from a monthly survey of 5,000 households, had retreated in July to 47.4 (1985 = 100), then rebounded in August to 54.1 only to slide back in September to 53.1. A number somewhere in the 90s would indicate a growing economy. Those anticipating an improvement in business conditions over the next six months decreased to 21.3 percent from 22.2 percent.

“While not as pessimistic as earlier this year, consumers remain quite apprehensive about the short-term outlook and their incomes,” a board spokeswoman said. “With the holiday season quickly approaching, this is not very encouraging news.”

A similar survey conducted by Reuters and the University of Michigan found in October that “Few consumers expect their finances to improve anytime soon.”

It didn’t help that the economy shed 263,000 jobs in September, bringing the national unemployment rate, which continues to trend upward, to 9.8 percent. Unemployment has doubled in the last two years. The number of unemployed Americans stands currently at 15.1 million. Add to that another 11 million or so “underemployed,” those referred to by the U.S. Department of Labor as “involuntary part-time workers” and those “marginally attached to the labor force”.

As the losses at Bank of America indicate, bad debt continues to plague the economy. Nationwide, almost 100 regional banks have failed through the first nine months of 2009. Home mortgage delinquencies remain at a record high. Home prices may still have farther to fall. And there is mounting concern over commercial mortgage delinquencies.

“So far I’ve not seen real signs of an economic recovery yet,” says Eadington, “and given the fact that an awful lot of Las Vegas Strip facilities have been built with convention business in mind, a lot of it high-end, that is significant. Of course it can change overnight. But the question is, what are the signs of that? We have to say, at least in the short term, there aren’t many.”

The job market holds the key. Most economists, while they aren’t looking for substantial improvement in the unemployment picture in the short term, don’t expect it to get much worse either. And there are bulls, those who are talking about increases in consumer spending next year in the 4 to 5 percent range. They see the annual rate of payroll jobs starting to rise in 2010 and household debt continuing to decline and household net worth starting to grow again.

“Things can shift quickly as soon as demand suggests it’s warranted,” says financial analyst Bill Lerner. “And the recovery will be pretty notable from a cash-flow and earnings perspective. We won’t see levels of peak earnings like we did in 2007 because there is more supply, for one thing, and also because there is more debt.”

Lerner, principal of Union Gaming Group, a research and advisory firm based in Las Vegas, is a proponent of the “Things are less bad” theory.

“I feel like we’ve seen the bottom, and that was probably the second quarter,” he says. “People now are using the world ‘stabilization’ next year in Las Vegas, which probably means anywhere from less bad to marginally better.”

His firm says current trends suggest that hotel occupancy levels are better than perceived and booking windows are expanding, and declines in visitor numbers and gaming revenue are leveling off. Lerner is looking for 5 percent growth in visitation next year and a trend toward more spend per visitor per hotel room. He predicts 4 percent growth in RevPAR.

“Which is pretty meaningful,” he says, “when you consider that everybody in the free world is expecting negative growth.”

The LVCVA is looking for a boost in 2010 visitation in the low single digits.

“The good news is our [hotel] occupancy levels are still significantly higher than the U.S. as a whole,” says Jeremy Handel, the authority’s public relations manager. “We’ve been able to maintain the highest occupancy rates in the country.”

He adds, “All of our research shows the desire and appeal of Las Vegas is still very high.”

But clearly the world is changing, and Vegas is going to have to pull off yet another of its storied transformations to keep pace.

“We have to right the ship,” says Aguerro. “We have to make it work, hit the ‘reset button,’ if you will.”

The mid-market, which largely was ignored over the last several years in the pursuit of the high net worth crowd, remains underserved on the Strip, as Union Gaming and others have pointed out.

And as one local real estate developer observed recently, “About 85 percent of Americans have yet to come to Vegas.”

Says Marnell, “What we’re going to see from a rebound perspective is a large influx of Middle America, the people yearning to take a vacation again. It’s just a matter of time when they are going to feel confident again. Once that confidence gets restored they’ll come quickly. When you see the whole country showing positive job growth for three or four months, Vegas will roar again. This town has a lot of what this country loves and wants.”

Casino Journal Managing Editor Marian Green contributed to this report.