Summertime in Atlantic City and the living’s supposed to be easy — sun, surf, salt water taffy, charter buses bursting at the seams with day-trippers, the endless jangle of 35,000 slot machines.

But last summer was anything but, thanks to the pasting inflicted by the new racetrack slots in Philadelphia and New York. This summer add the fallout from the mortgage meltdown, which has screwed credit into the ground, and the combination of a slumping economy and rising fuel costs and a partial smoking ban which in a few months will be a total smoking ban and Atlantic City’s casinos are swimming in even rougher seas.

“It’s very difficult for any market to handle one challenge, this market’s having to handle four,” said industry analyst Harvey Perkins. “And only one was known, which was the competition factor. The rest nobody knew was coming, unless your name is Kreskin.”

Perkins, senior vice president of Spectrum Gaming, one of the industry’s leading research and consulting firms, lays no claim to clairvoyance, but when he peers into the mists of Atlantic City’s immediate future he admits to encountering only more mist, most of it still blowing in from those racinos in her key feeder markets.

“We still haven’t seen any sign that this additional supply has been eaten up yet. This still presents a challenge to Atlantic City,” he said. “And we still haven’t seen the full ramp-up of Pennsylvania. You’re going to have two Philadelphia casinos coming on line, which represents a greater expansion of the convenience market.”

There is an analogy, he says, in how Las Vegas flourished in the face of the onslaught from California’s Indian casinos and Reno did not.

“Atlantic City, unlike Vegas, at the first instance of supply shock, experienced alarming declines.”

New Jersey was the only one of 12 U.S. states with commercial casinos to see revenues decline in 2007. It moved in a direction opposite the rest of the nation, down 5.5 percent against a 5.3 percent increase nationwide.

 The new competition had a lot to do with it. In this respect Ernie D’Ambrosio, managing director of the Atlantic City office of leisure and hospitality consultants The Innovation Group, agrees with Perkins. “Last year, I think, caught a lot of people by surprise,” he said — “the depth of the impact.”

As for this year, it has been “brutal,” to quote a recent report in The Philadelphia Inquirer.

Casino revenue was down 4.8 percent in the first quarter. EBITDA, the measure of a casino’s ability to generate profits, was down 17.7 percent as a result. Nine of the city’s 11 casinos experienced EBITDA declines. The average price of a hotel room dipped from $101.84 in the last three months of 2007 to $93.03.

The second quarter wasn’t looking too promising either. May was only the second month this year that gambling revenues were up compared to last year, and that was against a May 2007 that Pennsylvania helped drag down by 5.5 percent. And the increase was less than dazzling, easy comps notwithstanding — it was 1.6 percent — and that was with an extra weekend day, better-than-average table hold, a strong Memorial Day holiday and Uncle Sam’s economic stimulus checks. Slot win actually was down 1.5 percent, better than last May’s 7 percent slide, but despite a 2 percent decrease in the number of machines per casino, average win per day essentially was flat. Casino revenue was down 4.4 percent through the first five months of 2007. This year it was down 5 percent. Last year, slot win was down 6.9 percent. Through May 2008 it was down 7.1 percent. About 60 miles away at the 2,750 or so slots and EGMs at Harrah’s Chester Casino & Racetrack in Chester, Pa., revenue was up 25 percent. Farther north and east, at Philadelphia Park Casino and Racetrack in Bensalem, Pa., the win at some 2,700 machines was up more than 40 percent. Slot revenue is 70 percent of the Atlantic City market.

The ailing economy cannot be discounted in all this. Slot win at Foxwoods  in southeastern Connecticut was down about 4 percent in 2007 and down about 1.8 percent at neighboring Mohegan Sun. Consumers are dizzy from the wild ride to which they’re being treated by rampant global speculation in the price of a barrel of crude oil, and even “recession-proof” Las Vegas is feeling the pinch, and feeling it in the basics, in hotel occupancy and slot play on the Strip, obvious indicators that the mass market is pulling back on a national scale.

“Are gas prices having an effect? Yes. It would be silly to think they wouldn’t,” D’Ambrosio said. “It impacts the way people think. I don’t know if it’s stopping them from  coming, but instead of, say, four trips a month they’re making three trips. It gets into that convenience factor. The people going to the racinos, they may not get all the bells and whistles, but again, if it’s $30 or $40 cheaper to put gas in the car that’s a factor.”

The irony is that Atlantic City, whose strengths have always been affordability and convenience — a roll or two of quarters and a comped buffet, at most just a couple of hours by car, or bus if you were too old or too poor to drive, from just about anywhere in the Northeast Corridor, the greatest concentration of humanity in the United States — not only isn’t benefiting, but the downward slide that began in 2007 is continuing well into 2008.

The town has seen tough times before, needless to say, the worst of it perhaps in the late ’80s and early ’90s when the twin blows of recession and the opening of Foxwoods sent annual visitation into five successive years of declines. But in the generation that has come and gone since the casinos first arrived the market never suffered a year-over-year drop in gaming revenue — until 2007. Which is doubly ironic because in all likelihood it would have weathered the ill winds of the current economy fairly easily simply by standing still. Such is the enormity of the convenience factor, principally as it applies to the two slot warehouses in the Philadelphia suburbs.

It’s interesting in regard to this to speculate on just how narrow the margin of difference may turn out to be. Visitation to Atlantic City in 2007 was down by roughly 1.2 million trips. If there is anything to the old estimate of 30 trips per visitor per year we’re talking about all of 40,000 people. Yet how much did this hypothetical 40,000 leave behind last year at Harrah’s Chester and Philadelphia Park and at the 5,200 or so VLTs at Yonkers Raceway outside New York City? More than $920 million. Atlantic City in 2007 came up $297 million short of at least matching 2006’s revenue. This amounts to slightly more than half of what was “diverted” to Harrah’s Chester and Philadelphia Park. Back that in, then consider the impact of the closing of the Sands in November 2006, and revenues at worst would have been flat year over year, maybe even up a little — not too shabby given the downturn in the economy. The market is up a healthy $160 million or so if you back in half the take at Yonkers, about $190 million.

In the meantime, Pennsylvania has quietly emerged as the largest racino state in the country in terms of gross revenues, topping $1 billion last year, blowing away West Virginia, the former leader, and former No. 2 New York state. It has taken its place among the seven largest commercial gambling jurisdictions in the United States and soon could break into the top five, and it’s still far from full build-out. Through May, gamblers poured on average more than $1.61 billion a month into the machines at its six racinos and one slots-only casino from which the properties averaged more than $130 million a month in aggregate win.

Clearly it’s adjustment time for Atlantic City. The town is in “recovery stage,” as Perkins puts it, in which the key will be “capital catalysts,” which is to say, more hotel rooms.

“The market is going through a transition from being for all of its existence a day-trip market to being an overnight market,” said Larry Mullin, president of the Borgata Hotel Casino and Spa, the property viewed by many as the embodiment of the kind of expansive, full-service resort the market must move toward if it’s to flourish.

“The best way to compete,” he said, “is with product, especially differentiating product.”

Perkins, D’Ambrosio and others who study Atlantic City for a living are confident this will happen. With the scheduled opening later this summer of the Chelsea, a boutique non-gaming hotel on the Boardwalk, and a second massive hotel tower at Trump Taj Mahal the city will offer more than 16,000 hotel rooms. Harrah’s added more than 900 rooms earlier this year with its new Waterfront tower. Borgata’s highly touted Water Club, a non-gaming hotel, with 800 additional rooms, opened in June.

The market needs 20,000 rooms, says Jefferies & Co. Managing Director Lawrence Klatzkin. Which obviously is going to take time, probably longer than anticipated a year or two ago, when bank credit was flowing like champagne.

. “It’s not going to change any time in the near future,” he said. “And the smoking ban is going to have to be absorbed. And Yonkers, a new racino at Aqueduct, Pennsylvania, that all has to be absorbed. But the market is not unhealthy. No one’s closing. New must-see properties, a little freshness to the city, it can make a difference.”

He sees gaming revenues picking up in the second half and finishing the year down only about 2.3 percent, rebounding in similar fashion in 2009 to an increase of 1.6 percent.

One clear advantage for the short term is the low tax rate, 9.25 percent on the gaming gross, third-lowest in the U.S. casino industry, which translates into money for marketing and complimentaries that Pennsylvania can never hope to match with an effective tax rate of 55 percent. However, the tough first quarter saw Atlantic City’s casinos shave more than 5 percent from spending on complimentaries. It will be interesting to see how this plays out if the pressure on profits continues.