Both current U.S. and Nevada economic conditions remain favorable. Moreover, the near-term outlook is good. To be sure, gasoline prices have continued to trend upward. The current energy situation reflects continued strong growth in world demand without increased supplies. But, the impact of higher fuel prices has not been as adverse as in the early 1980s, when fuel prices were a greater percentage of GDP.
Though higher fuel prices have not derailed the current expansion, prices continue to inch upward, giving reason for increasing attention to the inflation outlook. The consumer price index (CPI) is now growing at an annual rate of 3.5 percent, up from the 3 percent range of the 1990s. Excluding the price-volatile sectors such as oil, the core CPI remains relatively moderate at 2.3 percent.
Recent energy-price increases and expectations for no letup in world energy demand give reason to believe that the inflation rate should continue to increase in the months ahead. It is the prospect of these future price increases that has the Federal Reserve in an inflation-constraining mode. The Fed may well continue to push the federal funds rate up a notch or two before pausing to evaluate conditions. Further rate hikes will depend on assessments of future inflation prospects.
Increasing the federal funds rate nudges other interest rates upward. Rising interest rates tend to reduce growth, leading to prospects for slower U.S. growth in the last half of 2006.
The prospect for slower rates of growth in the last half of 2006 for Nevada comes after a sustained, rapid expansion in the Silver State. Job growth remains strong – up 5.1, 5.5 and 4.7 percent on an annual basis from year-ago levels for Nevada, Las Vegas and Reno, respectively. Gaming revenue is still growing, but at more measured rates. Nevada’s prospects remain bright, even if not at past record-setting rates.
