More than two years after U.S. housing markets started rebalancing and a year after financial firms became bogged down in bad paper, markets concluded that the recovery failed to get traction. Financial firms were unable to correct their problems, resulting in credit markets failing to operate. In short, the Treasury and Fed failed to stem the tide.
In the span of one week, spreading financial contagion sent Fannie Mae and Freddy Mac into receivership. Merrill Lynch merged with Bank of America, Lehman Brothers collapsed and AIG also went into receivership. Facing rising adversity, the Bush Administration went to Congress seeking legislation that would enable the Treasury to purchase assets of troubled financial firms. The Administration hoped to prevent further disruptions in markets. At the time of this article, a solution had not been determined and the winners and losers had not been identified.
The news about Nevada’s job outlook proved equally disconcerting. The Nevada unemployment rate in August jumped to over seven percent, compared with 6.1 percent nationally. In just one calendar year the unemployment rate levels rose by 2.1 percent and 2.3 percent for the Las Vegas and Reno metro areas, respectively, and now stand at 7.1 (Las Vegas) and 6.6 percent (Reno). The slowdown in construction largely explains changing job fortunes of the Silver State. With credit markets frozen and empty housing units, it is hard to see an expedited resolution to current conditions.
Recent facts for Nevada uniformly fall on the negative side when measured against year-to-date information. Visitor volume and tourist spending are down as are consumer spending for automobiles, furniture and home repairs. With declines in tourist spending, take home pay for many tourist-based jobs are depressed. These lower paychecks result in less income working its way through other parts of the Nevada economy.
The current environment runs contrary to past experiences where Nevada’s tourism economy did better during downturns than other regional economies. Over the recent months, groceries, gasoline and other household staples have become priorities for many Nevadans. Although future downturns may be different from the current one, evidence suggests that in future downturns consumers may spend less for Nevada entertainment than historically.