USA - Rising Fuel Costs and a Housing Slump are not a Good Sign

Recently we visited the United States of America, as we wanted to see for ourselves the so called impact of the Credit Crunch and high oil prices.

The fastest growing city in the United States is Las Vegas.  In many ways it is also the ritziest.  The population is around 2 million and there are some 38 million visitors per year.  There is the glamour and also the sleaze.  On the strip are some magnificent themed hotels, which of course are the home to many of the casinos.  Many large conventions are held in Las Vegas.  Currently under construction is a new convention center which also has a ten thousand room hotel. 

Las Vegas is a city that is really hurting.  Tourism numbers are rapidly declining as people and visitors can no longer afford to go there.  Unlike in New Zealand, a large proportion of Americans have jobs that are virtually reliant on commissions, bonuses or tips.  Their base salaries are very low.  Sales across virtually all sectors have plummeted, with the result being that incomes have fallen by up to eighty percent.  Waiting staff are still receiving tips, but the size of the tip has reputedly fallen by more than a half.

As Vegas was and still is an area where there is population growth, the house construction industry was very important.  But house sales have stalled and mortgagee sales are now prevalent.  The property market had been booming which gave plenty of scope for mortgage fraud.  The extent of this is now only just starting to be realised, and there are now some very large fraud cases being detected.  One couple have just been put into prison for mortgage fraud exceeding $100 million.

A short distance away from Las Vegas is the city of angels, Los Angeles in Southern California.  For New Zealanders, two of the largest attractions are Disneyland and Universal Studios.  Both of these wonderful attractions are still being affected by the impact of 9/11.  Tourist numbers are down by around 2 million visitors per year or some 5,000 visitors per day.  For the theme parks alone, this probably adds up to over $300 million each.  It is no wonder that they are hurting.

Many firms have made the move to having staff work four days per week, but still maintain the same number of hours that they would have worked for the normal five day week.  The driving force behind this is the increase in fuel costs.  Petrol in Los Angeles is now over $4 per gallon (about $1.45 per litre in NZD terms) which is low compared to Europe, Australia and New Zealand where the price is strongly influenced by taxation.

The motor industry is finally waking up to the fact that gas guzzling large cars, SUV’s and the like are likely to suffer the fate of the dinosaur.  Sales have plummeted.  If you want a Hummer which is quickly becoming the most socially unacceptable vehicle to drive in California, you would probably be able to lease one for around $130 per month! While new car sales overall are down by around 10% for the past year (the full impact of the credit crunch has not filtered through), Honda and Toyota sales are up by around 15% leaving the old American icons of General Motors, Ford and Chrysler with models that are not selling, and no short term prospect of sales as they do not have fuel efficient models to compete with the Accords, Civics and Jazz’s of Honda or the Camry’s and Corollas of Toyota.

It seems that the so called Bush Tax Cut cheques are being used to try and boost the economy.  Car dealerships, retailers and the travel industry are targeting this money and in some cases more than doubling it as a sales incentive.

Just over the border in Mexico, Tijuana shopkeepers that we spoke to report that tourist numbers (primarily meaning Americans) are down by some 65%.  The economic effect on this area will be massive.

We believe that the real economic impact of the credit crunch and higher fuel prices has yet to be fully felt in the USA.  There will be a lot more financial pain to come.  Unfortunately it is likely to flow onto New Zealand as our economy will invariably feel the impact of the downturn from one of our largest trading partners.