Business Indicators - June 2001

Business Indicators

by R. Keith Schwer

Having aggressively pushed interest rates upward to slow down an overheated stock market during the first half of 2000, the Federal Reserve retraced its steps in pushing interest rates down in 2001 to counter sagging stock prices. In early January 2001, the Federal Reserve changed its policy direction. It dropped the federal funds and the discount rates by 50 basis points on five occasions between January and mid-May.

High-flying information-technology stocks plummeted. Even the broad-based S and P 500 declined by 14 percent from April 2000 to April 2001.

Fearing further and more measured deterioration in future overall economic activity — both the Conference Board and the University of Michigan surveys of consumers have been trending downward — the Fed is pushing interest rates lower to support investment and consumer spending. Still, as of the first-quarter 2001, Gross Domestic Product (GDP) continues to grow, showing surprising strength for the first quarter given the abundance of reports concerning financial weaknesses.

The recent key non-financial indicators reveal that the national economy is continuing to grow, though at a slower rate than during the robust growth of the late 1990s. Auto and truck sales are off by a modest 2.7 percent for April 2001 in comparison with the previous month, but down 6.8 percent from April 2000. On the other hand, another big-ticket item, housing starts, was up 1.5 percent over the previous month and down 1 percent for the same month a year ago. Generally, lower interest rates resulting from Fed policy changes have buoyed the housing sector and retail sales were up 3.1 percent from a year ago. All in all, consumer spending has remained strong in light of the adverse wealth effects associated with declining stock prices, and it has been a key factor in keeping the economy out of a recession to date.

Nevada’s economic conditions mirror the national situation, namely economic growth at slower rates. Nevada’s gaming revenues grew at 2.6 percent for March 2001 over the same month a year ago. Over the same period, gaming revenue grew at 3.2 percent for Clark County and 1 percent for Washoe County. Taxable sales for February showed a pattern similar to gaming revenue, up 2.6 percent, 2.5 percent, and 2.4 percent for Nevada, Las Vegas and Reno, respectively. In short, broad-based indicators show the state’s economy is holding steadily, but with increased financial and energy uncertainties.