Credit card spending patterns may suggest weakening demand for casinos.
Starting from early 2022, a period encompassing record-high inflation rates in four decades and the highest interest rates in two decades, the gaming sector has generally managed to withstand the macroeconomic challenges. However, recent indicators suggest this might change.
At present, Las Vegas remains resilient as it recorded a historic $1.28 billion in gross gaming revenue (GGR) for July. But, it's concerning that the post-coronavirus factors that fortified the gaming industry seem to be fading away. In a recent report by Stifel Think Tank, they pointed out that the current conditions like inflation and higher interest rates are no longer new or temporary changes. "The 'soft landing' remains a popular topic among investors and management. While macro deceleration has slightly diminished, it is only on the first derivative. There's very little indication of a stability in the economic situation considering the ongoing depletion of savings ratios and an easing job market environment."
The research firm also revealed that overall consumer spending is still doing well; yet, it's mainly supported by necessity categories, such as food, gas, and healthcare. Discretionary spending, which includes activities like gaming, travel, and leisure, is seen as weak to stagnant or negative when compared to easing comparisons.
Although Stifel doesn't single out gaming as a separate category, it does belong to the more comprehensive amusement, gaming, and leisure segment. They highlighted that the spending on these sectors has been stagnant for more than a year. Despite some positive trends for operators like Caesars Entertainment (NASDAQ: CZR), MGM Resorts International (NYSE: MGM), and Wynn Resorts (NASDAQ: WYNN), the broader credit card spending data shows a generally flat trend for those industries.
On the pessimistic side, US consumer credit card debt surpassed the $1 trillion mark recently, and this is accompanied by high default rates for auto loans and credit cards as well. Additionally, casino stocks, including Caesars and MGM, suffered last month as the market foresaw upcoming potential downturns in consumer spending.
Employment trends in the United States give us more insight into consumer discretionary spending and the signs are not very promising. While some will contend or lie to gain votes, the fact is that the majority of the jobs generated since January 2021 were not new jobs at all. These roles just resumed after the COVID-19 lockdowns. Furthermore, many of the newly formed jobs are low-income, part-time positions. Worsening the job scenario are rising layoffs in the technology sector and significant downward adjustments made to the June and July employment reports.
Dallas, Miami, Tampa Bay, and Las Vegas - these cities are most closely linked to US housing trends. Stifel Think Tank noted that these areas have begun to experience negative trends or significant slowdowns this year. This might have an adverse impact on local casinos in the Las Vegas Valley if the situation deteriorates further.
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