Business Indicators - January 2003

Business Indicators

by R. Keith Schwer

Evaluation of recent information, especially in comparison with data for September 2001, is clouded by the Sept. 11 experience. As such, looking across a wider time span to gauge current conditions, we find the events since March 2001 – the date given for the end of the last phase of business expansion – are best described as a "shallow" recession. Indeed, the current recession shares many of the same attributes as the last recession in the early 1990s. As a result, it is not surprising economic recovery and movement into the next phase of expansion might take time.

With the national and Nevada economies "muddling though", the uncertainties of terrorism and war dampen business investment. Investors’ discomfort with a number of business practices further limits investment spending. As such, investment spending levels now stand well below the level of March 2001. Thus, until the clouds of uncertainty go away, key players needed to push the economy along a more robust path will remain on the sideline.

The Fed continues to follow expansive monetary policy. Federal funds rates are at their lowest levels in many years; money supply continues increasing at strong rates. Fiscal policy, at least at the federal level, remains expansionary. A combination of additional spending and reduced taxes, albeit modest first steps in the overall Bush tax plan, pushed fiscal policy from surpluses to expansionary deficits, further stimulating activity. In short, monetary and fiscal policy activity has been timed correctly and has helped soften the recent downturn.

Nevada state government, as in many other states, finds revenues falling short of projections, resulting in expenditure cuts and search for additional revenues. In regions where the recession has had the most severe impacts, state governments have been hardest hit. By all accounts, Nevada will grow slowly next year, at least compared with growth in the late ’90s. Slow growth in tourism activity will further impinge on state revenues, given dependence of revenues on gaming activity. Though Nevada will likely retain its prized position as the best performing state economy, the harsh realities of revenue shortfalls will no doubt force further juggling of state priorities.