Amid the flurry of gyrating stock-market activity, the U.S. economic expansion continues, albeit at a modest pace. Second-quarter preliminary estimates put the growth rate of inflation-adjusted gross domestic product at less than 1 percent, following a first-quarter expansion of only 1.2 percent. Many of the new high-tech firms have folded, and some of the older firms have experienced difficulties as attention-getting layoffs have occurred.
Not surprisingly, unemployment rates are up, rising to 4.9 percent, 5.0 percent and 3.9 percent for Nevada, Las Vegas and Reno, respectively. Nationally, the unemployment rate has reached 4.5 percent, up from 4.0 percent a year ago. Still, some further increases in unemployment are anticipated. For some, this is a sign of a pickup in the rate of activity by the end of 2001. Others, however, are not so optimistic, believing that the areas most affected — for example, information technology — will need some additional time before their problems can be fully addressed. All in all, most still call for the economy to miss an official recession, defined as two consecutive quarters of decline in overall economic activity.
Nationally, travel and tourism is an economic sector that has seen some softening. Nevada has not been immune to this national trend. Visitor volume and gaming revenue are up modestly for the year to-date, with swings from month to month. With a continuation in overall lackluster U.S. growth, one might expect further softening in Nevada’s primary industry.
The continued development of Nevada-destination resorts as centers for shopping sprees has helped to keep consumer spending on a strong pace to counterbalance other weaker sectors. For May, Nevada taxable sales were up by more than 6 percent over the same month a year ago. Both nationally and in the Silver State, continued strong spending by consumers has been a key factor in keeping the economy moving forward.
The Federal Reserve has already responded six times to changing conditions by lowering interest rates, at least on the target short-term rates under its control. A tax cut has been enacted at the federal level that will put more money in the hands of people to spend. In short, the policy levers have been pulled — now we await the expected expansionary effects in the months ahead. Typically, these effects take from six to 18 months. Still, it remains unknown whether these favorable conditions will seed accelerated future growth. Over the next year and a half, recovery in business investment will be most important. In particular, investment in information technology has been one of the most important drivers of growth during the last half of the 1990s and is most important in the current “new economy” environment.