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Nevada Economic Conditions

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. We are still waiting for the next shoe to fall.

Facing rising adversity, the Bush Administration went to Congress seeking legislation that would enable the Treasury to purchase assets of troubled financial firms in an attempt to prevent further disruptions of the market. 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 as the national picture. The Nevada unemployment rate in August jumped to over 7 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 percent (Las Vegas) and 6.6 percent (Reno). The slowdown in construction largely explains the declining job statistics of the Silver State. With credit markets frozen and mass amounts of empty housing units, it is hard to see an expedited resolution to these conditions.

Recent facts for Nevada uniformly fall on the negative side when measured against year-to-date information. Visitor volume and tourist spending, both being household discretionary items 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 greatly depressed. These lower pay checks result in less income working its way through other parts of Nevada’s economy.

The current environment runs contrary to past experiences whereby Nevada’s tourism economy fared better during national downturns than most regional economies. In recent months, groceries, gasoline and other household staples have become a financial priority for many Nevadans. What can be deduced at this time is that this downturn has hit the state harder and longer than downturns in the past. Consumers, residents and tourists, are expected to continue spending less which will prolong the depressed economy. The return of consumer confidence is the most important component for a turnaround to begin.

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