The national recession, which began in March 2001, has not ended, at least according to the customary assessment procedures. Under these procedures, a recession comes to an end when the recovery generates sustained increases in aggregate output and employment. So far, a growing U.S. economy, as reflected by an increase in GDP (gross domestic product) of 0.4 percent during the fourth quarter of 2002, has proved insufficient to boost employment. Indeed, employment levels dropped 0.2 percent in December 2002. What’s more, the recent monthly indicators suggest continued softness in the economy. That is, strong improvement in employment is not on the near-term horizon.
To some degree, a slow recovery might have been expected. The long expansion during the 1990s seeded a financial bubble – a hangover followed an over-investment boom. And, on top of a slow recovery, international political turmoil has shocked people into forgoing big-ticket purchases.
As oil prices have jumped to nearly $40 per barrel, one increasingly expects weaker economic performance. An historical rule-of-thumb suggests a $10-per-barrel price rise lowers GDP growth rates by 0.5 percent. To be sure, further disruptions could send prices even higher. Significant destruction of oil fields from war and terrorism could keep prices above normal levels.
Still, the second half of 2003 is likely to be better than the first half of 2003. Though, on a longer horizon, federal budget deficits, having been in the black, now are likely to be a drag over the longer outlook.
Conditions in Nevada, though weaker than usual, show stronger economic recovery than the national economy. Employment growth, measured relative to a year ago, is up 2.4, 2.8 and 2.1 percent, respectively, for Nevada, Clark County and Washoe County.
