Stock-market volatility and declining share prices would, other things being equal, suggest economic weakness. Wall Street activity, however, does not always reflect economic fundamentals on Main Street. Indeed, despite falling stock-market indexes since March 2000, overall U.S. economic activity remains generally healthy with the latest unemployment rate (February 2001) at 4.2 percent, though Gross Domestic Product (GDP) growth has slowed from the torrid pace of the past four years.
Increasingly, financial news covers daily and hourly movements in stock prices, crowding out economic news that has remained positive and upbeat for sometime. Still, stock-market declines, particularly those associated with the near free fall of dot-com companies, suggest future weakening of U.S. economic fundamentals. The year 2001 could be one with near-zero growth.
As the Federal Reserve pushed upward on interest rates during most of 2000 and falling asset prices cut into consumer confidence, attention increasingly turned to slowdowns in sectors other than information technology. For example, auto and truck sales are down from year-ago levels by 5.7 percent. Whether softening in a few markets will spill over into other markets remains unknown. Without a major spillover to other markets, economic activity for the rest of 2001 might follow a V shape, suggesting strong GDP growth by year’s end. A longer slowdown, referred to as a U shape, is likely with a further spread of economic softening to other areas, a situation reflective of a more sustained slowdown. Increased breadth and severity of economic conditions so as to shift concern from Wall Street to Main Street would trace out an
L-shaped pattern. Such an event would reflect a more severe downturn and a longer recovery. All in all, economic softening is underway, but its severity remains in question.
Meanwhile, conditions in Nevada remain generally steady. Without a large manufacturing sector, the recent turn of events has not been as adverse as in other regions and other sectors. Growth in Nevada’s employment level is slowing and the unemployment rate is increasing. Still, conditions can best be described as steady. Visitor volume for December 2000 is up for the state of Nevada and Reno, but down in January 2001 for Las Vegas. Gaming revenue is up for the state and Las Vegas, but down for Reno. Nevada taxable sales are up 4.3 percent over year-ago levels, but softening national conditions give reason for Nevada to monitor conditions more closely for a downturn, at least through most of 2001.