UNEMPLOYMENT: SOME OF THE SAME AND SOME DIFFERENT

Following up on our “THINK LOCALLY” post of 12/07, it is clear that environment is not ideal for gaming operators. For these stocks, unemployment matters and what we care about is what happens on the margin.

The chart below shows which areas have seen an increase in unemployment and also whether the rate of change of the unemployment trend in November was greater or lesser than that in October. Clearly, it is not a pretty picture; most metropolitan areas are seeing an increase in unemployment at a faster rate than last month. LA, NY, Vegas, and other are still suffering from severely negative trends. However, it seems that Shreveport and New Orleans have seen an improvement in unemployment figures during November.

With PNK deriving 75% of its EBITDA in Louisiana, this could signal an important slowing of the unemployment tide (LA had experienced a sharp October increase in unemployment). Even in Houston, an important feeder market for PNK’s Lake Charles operations, the rate of change stabilized in November.

The consensus view is decidedly negative so any positive delta could mean a big move in the stocks. Unfortunately, Louisiana appears to be the only remotely positive take away from the disturbing unemployment picture. Of course, the new government plans to spend like drunken sailors which could provide a temporary boost to employment. We’ll have our eye on that trade too.

Rory Green