Business Indicators - January 2008

by R. Keith Schwer

The Nevada and U.S. economies enter 2008 facing the headwinds of the housing slowdown, uncertainties in credit markets, and a general malaise about the future. Though consumer and business confidence has dropped, the most recent indicators are mixed, but not depressing. On the contrary, employment levels are higher than the same month a year ago for the U.S., Nevada, Las Vegas, and Reno. The rate of expansion has slowed, however.

Looking at more recent changes across all the indicators, we find mixed conditions. On the one hand, gaming revenue is up for Nevada and Clark County (Las Vegas). Reno posted a modest decline for the same month year-over-year. Mineral prices (not shown) continue to buoy the economies of rural Nevada. On the other hand, taxable sales, though showing nice gains most recently on a month-to month basis, declined for the same month year-over-year for all but Clark County, which posted marginally positive growth.

Most notable among the weak indicators was visitor volume. Capacity constraints have limited growth in the Las Vegas travel and tourism sector. Constructing too many homes has taken a toll on the performance of the Las Vegas and Reno economies. Residential construction is down sharply, but other construction has continued at a good rate. But, once the “herd is thinned,” there seem to be few credible reasons to preclude Nevada’s construction sector from returning to more prosperous times.

Since housing has taken a sharp turn for the worse, firms, having a position in exotic housing-based financial instruments, have scrambled. Some big losses at big financial institutions have occurred. These losses have appeared globally. Write downs in the hundreds of millions are likely. Adjustments will continue. How long before financial markets return to functioning normally is unknown, but no one believes the problem will pass quickly.

Economic conditions will remain in flux until insolvency is no longer a high risk. Nevada, having been among the states most affected by housing speculation, will likely require more than average adjustments. These adjustments will, however, be aided by stronger than average growth. To the degree that mortgages were sold to out-of-state buyers and speculators were out of state helps insulate the Silver State to a degree. Still, the finance and credit problem will linger, sapping economic vitality.