Business Indicators - October 2009

Business Indicators

by R. Keith Schwer

    We have come to the one-year anniversary of the Lehman Brothers’ failure.  They held a long-standing Wall Street position of financial strength and most considered Lehman too big to fail. Not surprisingly, the failure sent a wave of shocks, including consumers cutting their spending, paying off outstanding credit, and raising their savings.  Job losses grew quickly.  Discretionary spending for travel and entertainment saw some of the largest cutbacks.  Nevada’s economy over the past year, the second year of the recession, declined markedly.

       One finds clear evidence of the severity of the current recession in the preponderance of negative percentage changes measured for the same month a year ago.  The rise in the unemployment rate shows the largest gains, up 84.1 percent, 89.9 percent, and 82.1 percent in a year for Nevada, Clark County (Las Vegas), Washoe County (Reno), respectively.  The Nevada rate of 12.7 percent is a full 3 percent above the national rate.  This severity of the current difficulties in the Silver State will surely continue as the job picture recovers slowly after the economy returns to expansion and the length and depth of the national recession cut into the economic muscle of the Silver State’s economy.

      Excessive residential and commercial real estate will keep Nevada’s construction sectors in check.  Credit availability for major new projects seems off the table—major capital markets have not fully recovered even with the support of the massive funding of the Troubled Asset Relief Program (TARP) program.  Moreover, early evidence, though far from conclusive, suggests consumers’ future spending of travel and entertainment may reset to lower levels than experienced before 2008.   So, one sees a clear pattern that the U.S. economy and the-all-important consumer will need to recover from the current recession before one might expect marked improvement in Nevada.

    Some signs of the ebbing of the severity of the economic free fall during late 2008 appear in the national data.  For one, the “cash for clunkers” stimulated auto and truck sales, up 25.3 percent for August.  Consumers had stopped buying big-ticket items (cars and furniture) and the “clunker” program proved successful in stimulating spending.  But, admonitions to those getting TARP money to not travel to Nevada for business conferences hurt the state’s gaming and tourism economy.   Time and chance happen to all—but a job lost in Nevada is no better or worse than a job lost elsewhere.

R. Keith Schwer
R. Keith Schwer - UNLV Center for Business and Economic Research