Concerns Rise Over Potential Recession in US Gaming Industry
Posted on: October 4, 2023, 05:14h.
Last updated on: October 4, 2023, 05:15h.
The gaming industry in Nevada has seen record-breaking gross gaming revenue (GGR) this year. However, industry CEOs are growing concerned about the potential impact of a recession on the US economy, even as early as this quarter.
In the recently released Gaming Industry Outlook by the American Gaming Association (AGA), the Current Conditions Index showed slight growth in the third quarter, while the Future Conditions Index is expected to decline over the next six months.
The Future Conditions Index reflects positive growth expectations among gaming CEOs, but also acknowledges the possibility of a mild recession starting in the fourth quarter,” according to the AGA. “While current conditions are generally positive, opinions about future business conditions are more balanced.”
While the general consensus in Las Vegas is that the US casino industry is not currently displaying signs of a recession, some executives have noted that high inflation has led to reduced impulse spending by customers in Sin City.
Concerns about a Looming Recession
Traditionally, a recession occurs when a country’s GDP experiences negative growth for two consecutive quarters – a condition that the US economy met last year.
However, the definition of a recession has been called into question, with the media and banks challenging it for political reasons. After significant government spending triggered high inflation and interest rates, the US economy could be vulnerable in the near future, posing a threat to the gaming industry.
“The anticipated downturn will be driven by cumulative Fed rate hikes, tighter lending conditions, and high inflation, leading to reduced spending, hiring, and investment by consumers and businesses,” added the AGA. “Despite expectations of a slowdown in consumer spending, surveys show that more than one-third of adults plan to visit a casino in the next year, consistent with previous quarters.”
Further highlighting recession vulnerabilities is the fact that, as of May, over 70% of US job gains since January 2021 are not new positions, but rather individuals returning to pre-pandemic roles. Additionally, real wages have declined by 5% since January 2021 due to significant inflation, according to the partisan House Budget Committee.
Impact on the Gaming Industry
Even a mild recession would likely lead to a decline in consumer discretionary spending, which would negatively affect gaming companies. However, there are additional concerns for heavily indebted firms, such as many casino operators, as they tend to struggle during economic contractions.
Gaming executives, as indicated in the AGA survey, remain optimistic about the health of their balance sheets, but expect slower revenue growth and fewer new hires. Furthermore, macroeconomic conditions are already posing challenges for the industry.
“Approximately one-quarter of gaming executives described access to credit as tight (26%), slightly outnumbering those who reported it as easy (19%). More than half of executives identified inflation or interest rate concerns as the primary factors limiting operations (58%),” concluded the AGA.