Business Indicators - November 2003

Business Indicators

by R. Keith Schwer

After the 2001 recession – a short-lived and mild one by comparison with historical downturns – the U.S. economy has not followed a usual recovery pattern of rapid growth in the months after hitting bottom.

With strong productivity growth limiting the need for workers, it is not surprising that the number of jobs has remained below the peak reached in early 2001. With the work force growing about 1 percent per year and strong productivity growth in the 2 percent per year range, the need for new workers is limited. Indeed, growth as measured by GDP needs to accelerate faster than 3 percent to make an improvement on the job front. Most recently, second-quarter GDP increased about 0.8 percent above first quarter GDP, or 3.1 percent on an annualized basis after rounding. Thus, the most recent growth rate suggests future improvement in labor-market conditions.

The meager performance of the U.S. economy in recent years has affected the Nevada picture, particularly as it came after the Sept. 11 downturn in tourism. Yet, despite the adverse effects of terrorism on travel and an economic recession, Nevada has done better than most other areas of the nation.

Employment levels in the Silver State stand above the employment level of the last economic peak in March 2001, whereas the national employment level has not recovered to the March 2001 level. The U.S. unemployment rate remains above 6 percent, compared with 5.4 percent in Nevada.

The U.S. and Nevada outlooks call for faster growth in 2004 and 2005. The Federal Reserve continues to keep the federal funds rate low in an effort to stimulate business-investment spending, the weakest component of aggregate spending. In addition, another federal tax cut has put money in the hands of households and businesses. To be sure, state and local governments, facing the most severe economic conditions since the 1930s, have been increasing taxes and cutting expenditures, partially offsetting an otherwise highly expansionary fiscal policy. All in all, however, policy action actively supports stronger expansion ahead.