The U.S. unemployment rate for May jumped 0.5 percent, rising to 5.5 percent. This jump sent a signal that economic conditions remained weak and future conditions would not improve quickly. This prospect sent currency traders scrambling to realign portfolios with fewer dollars. The declining dollar sent crude-oil prices up by more than $11, a one-day increase greater than oil cost during a period of low prices in 1998. Within a short space of 10 years, the one-day price change exceeded the past price level.
Having lived through a period of abundant energy supply and stable prices, we see stepped up world demand and tighter supplies. Crude-oil prices topped $100 a barrel for the first time in February. Supplies are likely to remain tight over the summer months.
Should supplies increase later in 2008, as some suggest, lower gasoline prices may occur, absent supply disruptions, to be sure. It is unlikely, however, that prices will return to past levels, though, it is also difficult to see prices remaining at current elevated levels, higher prices seed conservation. Fear of supply disruptions and market tightness will continue to cause price variability.
China, India, and other rapidly growing economies of Asia have increased the world demand for oil. With more oil demanded, we find that less is being produced. Supplies from some more mature oil fields are slowing, such as those in the North Sea. So, it is the forces of rising demand and constrained supply in world markets, along with fear of supply disruption and market tightness, which have sent prices higher.
The unemployment rate for the Silver State remains elevated above the U.S. rate, suggesting greater economic weakness in Nevada than in the U.S. The rates are 5.7, 5.5, and 6.0 for Nevada, Clark County, and Washoe County, respectively.
The other Silver State indicators show negative signs, evidence of economic weakness. Energy, housing, and credit problems have pulled activity down. Most notable among the other indicators is permitting activity, the first stage in construction, which is down by double digits for Clark County and Washoe County.
The prospects for residential construction remain weak. A return to more normal levels requires further adjustments, and these adjustments invariably take time. Moreover, tightening credit standards will slow the time to recovery, other things equal. Recent sharp housing-price declines in Reno and Las Vegas show needed changes are under way.