Business Indicators - November 2005

Business Indicators

by R. Keith Schwer

Hurricanes have destroyed homes and businesses in the Gulf Coast area, to say the least. Other regions are affected, particularly industries and regional economies dependent on oil.

In Nevada we are less adversely affected, as we do not get our gasoline and other petroleum products from the Gulf Coast region. Still, we will likely see some effects, such as higher costs for construction materials, as hurricane-related rebuilding occurs.

A healthy economy should enable the U.S. to withstand hurricane-related disruptions. Indeed, the Federal Reserve has expressed greater concern about inflation than about a recession. At the Fed’s first meeting after Katrina, it raised the target federal funds rate.

Hurricanes Katrina and Rita will slow the rate of growth in the near term and likely increase spending when rebuilding gets into full swing in 2006. In short, economic expansion continues.

The occurrence of weather-related and other adverse economic shocks suggests monitoring in the days ahead. Oil prices, which may trend downward, are increasingly volatile. Bottlenecks are more likely because of capacity constraints. Housing-price movements point to concerns for credit quality and speculative behavior. Deficits in both the federal budget and balance of payments could drag the economy off its course. Obviously, the list of concerns has increased as of late.

National issues are a concern for the Nevada economy. Still, we foresee that conditions will remain more favorable in Nevada than in the U.S. as a whole, and that economic expansion will continue.