On the surface, the Las Vegas economy looks dangerously like a busted flush.

As if the housing crisis wasn’t bad enough, hotel occupancy is down, visitors are spending less, commercial projects are running into trouble and convention revenues are dwindling.

Even the city’s casino operators, traditionally seen as relatively recession-proof, reported a sharp downturn in their fortunes in the first quarter, in part because they have expanded their leisure and retail offerings, which are more sensitive to the fortunes of the broader economy.

Harrah’s, the world’s largest gaming group, with eight casinos on The Strip, including Caesars Palace, reported a first-quarter loss of $187.8 million (£96.5 million) after what Gary Loveman, its chief executive, described as a “lousy” March. The Tropicana resort filed for bankruptcy protection this month because it could not sustain its debt payments. Since November, shares in Las Vegas Sands, the owner of the Venetian and Palazzo resorts, have fallen by 38 per cent, while MGM Mirage, which controls Bellagio, Mirage and eight other Strip casinos, has dropped by 42 per cent.

But there are still $36 billion of new hotel, gambling and housing resorts being built, including an entire quarter-mile stretch at the centre of The Strip.

The new projects, which will include 31,327 hotel rooms, are expected to bring 106,360 jobs to Las Vegas by 2012 – Beijing has added only 14,000 rooms in anticipation of hosting the Olympics this summer. (Las Vegas has about 130,000 hotel rooms, or 7 per cent of US total).

If recent developments are anything to go by, the chances are that a good portion of the new corporate construction will run into difficulties and some will be scrapped.

There is also no doubt that the next few years will be tough for the housing market with foreclosures in Las Vegas not expected to ease up until 2011 or 2012. But the foreclosure crisis will end and many of the proposed resorts will eventually be completed, reigniting the phenomenal growth that has resulted from the most extreme manifestation of the American laissez faire way. Analysts expect Nevada to remain the fastest growing state over at least the next two decades, at which point it will have added 2.2 million to its population since 2000.

Las Vegas would be advised to hold on to the hand it has been dealt. As Shari Wong-Culotta, the head of the PowerHouse Realty estate agency in Las Vegas, points out, in the long run the city will thrive because the fundamental drivers of its expansion remain. “House prices are still cheap relative to some states and are coming down. Taxes are low, the climate is great and the city will continue to create thousands of jobs,” she said.

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