Business Indicators - December 2001

Business Indicators

by R. Keith Schwer

Data available to monitor current overall economic conditions still reflect some pre-September 11 activity, rendering the current information less robust in its ability to predict the Nevada outlook. Still, announcements of decreased spending, layoffs, cancellations and postponements have been sufficient in the post-September 11 period to conclude that the longest economic expansion in U.S. history has ended. It is now almost certain that two consecutive quarters of decline will occur, thus meeting the requirement to officially declare a recession.

Travel and tourism activity played a particularly noteworthy role in pushing the national and state economies over the edge into decline. Passenger volume for September measured against levels a year ago fell 29.1 percent, 28.3 percent and 34.9 percent for Nevada, Clark County and Washoe County, respectively. For Nevada, heavily dependent on air travel to support its tourism-based economy, visitor volume also dropped by double-digit rates and hotel occupancy fell. Since the terrorist attacks, executives have scrambled to halt losses. Cost- containment efforts included the loss of 15,000 casino jobs in Las Vegas alone (not fully reflected in the September employment data) and plummeting room rates as hoteliers looked to put "heads in beds." Concern for safe travel and a weaker economy have slowed Nevada’s primary industry. As a result, we foresee economic weakness over the near term and into next year.

National economic weakness appeared in late 2000, giving reason for the Federal Reserve (Fed) to shift its policy stance in January 2001. In a series of steps the Fed has lowered the federal funds and discount rates. Following September 11, the Fed not only lowered rates again, but also took additional measures to assure liquidity. As a result, possible contagious runs over uncertainty did not occur. Still, further action was suggested. The President and Congress put together an economic stimulus package to target areas of the economy most adversely affected by the terrorist attacks. To date, the economic stimulus package includes few provisions targeted to relieve a besieged tourism industry. Of course, in the Washington political arena, legislative options abound.