Business Indicators - April 2010

Business Indicators

    After four straight quarters of decline following the financial crash of October 2008, US gross domestic product (GDP) growth finally moved into positive territory in the 3rd quarter of 2009. GDP grew at an annual rate of 2.2 percent that quarter with much of the growth attributable to government spending linked to the federal fiscal stimulus package.   The US economy expanded again in the 4th quarter, growing at a robust annual rate of 5.7 percent.  The 4th-quarter expansion was in some sense healthier because it involved much-needed growth in the manufacturing sector as firms re-established inventories that they had let languish throughout much of 2009.  Still, this remains a jobless recovery, with the US unemployment rate at 9.7 percent, up from 7.6 percent a year ago.

    The Nevada economy is severely lagging the US recovery.  The Nevada unemployment rate stands at 12.8 percent, up significantly from the 11.8 percent observed in November.  The number of visitors to the state is essentially flat, growing a scant 0.7 percent in the past year.  The state’s budget picture is particularly bleak with taxable sales down by 6.6 percent over the year and gaming revenue down 3.2 percent over the same period.  

    The deepest recession since the Great Depression continued to wreak havoc on the Southern Nevada economy in December 2009. This is because our two primary economic engines—construction and tourism—were disproportionately impacted by the US recession. The run-up in house prices was much larger in Southern Nevada in 2003-2006 than it was in much of the US and consequently, the subsequent decline in prices was large as well. Moreover, Southern Nevadans are credited for a disproportionately high number of high-risk loans, so that the local housing market continues to suffer from exceedingly high foreclosure rates.  Excess capacity, in both the residential and commercial real-estate markets, means there is little incentive for homebuilders to begin new developments.  As a result, the construction sector has virtually collapsed.  

    Much of the US recession is linked to a drop in consumer spending resulting from the cuts in discretionary income that occurred as home prices declined in many regions of the US.  As the bubble burst, households tightened their budgets and cut back on travel and nonessential retail spending. This caused double-digit drops in gaming revenue and taxable sales well into 2009 in Southern Nevada.  Only recently has gaming revenue begun to show any sign of recovery.  Still, the modest month-over-month increases in gaming revenue observed in November and December 2009 revealed growth from a level far below the peak economic activity of 2007.  Taxable sales continue to suffer in Southern Nevada, falling from a high of $3.49 billion in December 2007 to a current value of $2.66 billion.  Taken together, the dramatic drop in taxable sales and gaming revenues since 2007 has placed severe fiscal stress on Clark County and the State of Nevada.