There has been a wave of recession declarations coming on the heels of bad news in residential construction. The housing industry produced more than the market absorbed, creating an excess supply of housing units. As a result, U.S. new home starts are down 27.8 percent from the same month a year ago. Reno and Las Vegas have been caught up in the speculative housing behavior of the last couple of years.
Home sales are also down sharply, especially in the Silver State and other states that experienced speculation. Products, services, and jobs tied to housing construction and home sales have declined sharply. One finds further declines in spending for high-priced items. With contraction in housing construction for a year and a half and six months of credit disruptions arising from housing finance, one finds many declarations that the U.S. and the Nevada economies are in a recession.
The most recent U.S. GDP numbers are positive, however, up 0.6 percent for 4th quarter 2007. This information suggests a slowdown, to be sure, but not a recession. Even before one quarter of decline has occurred, much less the two quarters of decline associated the popular media’s use of the term, one often hears that the U.S. is in a recession.
We clearly see the onset of economic declines, even if not yet a clear recession. From the February 2008 jobs report, one sees a one-month sharp drop of 63 thousand jobs, a reason for concern about the weakness of the U.S. economy. Sustained job declines surely will also reduce future spending and income. Job growth in Nevada is also flat; Clark and Washoe Counties saw little job-level change for January. One sees reason for concern and reason for the Fed to take further action. And, after the dust settles, it may later be determined that the recession began in early 2008.
Not all rebalancing of the economy, however, will be associated with Fed action. Indeed, market adjustments work to rebalance economy. Already we see sharply reduced monthly permitting activity, down to 471 for Clark County and 92 for Washoe County. Continuations of permitting at these monthly rates with current in-migration levels, working in unison with other efforts, will hasten corrections. Still, we face the prospect of further unexpected difficulties possibly arising that merit attention and prudent action.
