The slowdown continues. U.S. GDP grew at a tepid rate of 0.6 percent for the fourth quarter of 2007. Job growth showed similar weakness, a decline of 17,000 jobs over the last month, leaving employment essentially flat. Indeed, it takes a substantially greater decline than last month’s job losses for a recession. End-of-year numbers may also be influenced by irregular events more than other times of the year. So some caution is warranted as a small data revision could easily wipe out this decline. Still, the overall picture is worse than a year ago. Unemployment is up to 5 percent nationally; and even greater in Nevada — at 5.7, 5.6, and 5.4 percent, respectively, for the Silver State, Clark County (Las Vegas), and Washoe (Reno).
The housing correction began in mid-2006. Finance-sector corrections began in mid-2007 in response to the subprime mortgage difficulties in housing. Other economic sectors have experienced weakness depending on their linkage to housing and finance. Still, some business sectors have not been affected. Overall, Nevada’s business conditions continue to soften in step with U.S. conditions, but further declines are necessary to get an old fashion recession.
A recession occurs when you have sharp, identifiable, and significant declines spread across the economy. Nationally, real GDP, real income, employment, industrial production, and total sales offer evidence of a U.S. recession. In the Silver State, we look for significant declines in employment, taxable sales, gaming revenue, and visitor volume for a recession. To date, we don’t see it. Such events may yet unfold, however. So far, the sharp declines have been limited to housing, real estate, and financial sectors, despite the extensive media coverage and the psychology of pessimism that such coverage might generate.
The Fed has cut the Fed Funds rate by 2.25 percent and the discount rate by 2.75 percent. In addition, the Term Auction Facility (TAF) has been implemented. This Fed action has sustained stock and bond markets of late, showing some signs of hopefulness. Volatility will continue, however. Foreign direct investment and export growth are likely to persist if there is no deep recession. So, amid the turmoil, one sees some adjustments now under way, which could make outcomes brighter than those of the doomsayers. Fiscal policy actions may also prove helpful if timely, targeted, and temporary.