The National Bureau of Economic Research declared in late November 2001 that the U.S. economy peaked in March 2001. Attention quickly turned to discussions of a recession and the likely length of the contraction trough.
Typically, recessionary periods last at least six months, and usually longer, though in recent business cycles recessions have become shorter. Before Sept. 11, since consumers were relatively well off, we had forecasted a mild slowdown, with a good chance of even missing a recession. The attacks of Sept. 11, however, brought the nation’s air-transportation system to a halt, bringing financial burdens to a number of major industries such as hotels, restaurants and taxis. All in all, these economic disruptions acted to further dampen a slowing economy. Thus, one might have expected the events of Sept. 11 to have both lengthened and increased the severity of any economic slowdown.
But, just as the events of Sept. 11 were having adverse impacts, U.S. automobile manufacturers decided not to lay off workers. They kept workers on the job, choosing instead to lower prices and increase output. Favorable financing packages captured consumers’ interest. Sales rose sharply, revealing that people believed that it was a good time to buy. Consumers reacted quickly to market opportunities, pushing car and truck sales to record levels. To be sure, not all consumer-spending sectors shared in the spending spree. For example, travel and tourism have not returned to earlier levels and some “cocooning” behavior kept shoppers on the sideline. All in all, consumers remained confident and spent at record levels. Indeed, strong consumer confidence has more than made up for the pessimism prevalent among corporate executives, thereby softening and shortening the recent slowdown. Overall expenditures as measured by gross domestic product declined only for the third quarter.
Nevada, having over the years avoided many of the economic misfortunes of other states, now finds itself performing more like the national economy. Recent evidence suggests that the state will likely recover later in the business cycle than in the past.
Visitor volume fell for December 2001 – down 5.8 percent, 5.1 percent and 11.6 percent for Nevada, Clark County (Las Vegas) and Washoe (Reno) respectively. But, short-term adversity in one key indicator was buoyed by recovery in overall activity. For example, taxable sales compared to year-over-year levels for the latest month shows modest gains – up 0.4 percent, 1.5 percent and 0.6 percent for Nevada, Clark County and Washoe County, respectively.
All in all, modest changes in overall spending point to an end of declines and a more favorable outlook. A recovering national economy, hope for greater growth in countries to which the U.S. exports, efforts to further homeland security, and expectations for continued increased national productivity suggest future strength for the Nevada economy.