Business Indicators - February 2006

Business Indicators

by R. Keith Schwer

Looking at the current national data, we see good numbers – growth after inflation of 3.6 percent, unemployment at 5 percent and inflation in check. But, despite strong growth during 2005 and forecasts of economic strength continuing in 2006, concerns are mounting. Though fuel prices increased sharply in 2005 without triggering a downturn, the winter heating season will soon bring "sticker shock." Perhaps the public’s concerns of late reflect an understanding of shifting fortunes in discretionary funds. If so, debt-burdened consumers will simply slow their spending in the future, and the economy will also slow.

The rate of growth in 2006, by most accounts, will fall below 2005, but remain positive. Possible adverse unknowns include the much-discussed housing bubble (with Las Vegas and Reno posting rapid housing appreciation since 2002) and the large twin deficits (the federal budget and the balance of trade). Indeed, it’s difficult to be comfortable about long-term economic fundamentals when the U.S. consumes 6 percent more than it produces. Though such imbalances do not necessarily foretell near-term difficulties, continuation of these imbalances over time could prove detrimental.

With more and more talk about U.S. difficulties ahead, the view from the Silver State remains decidedly brighter. However, real estate activity bears watching, even with signs of more prudent activity. The rush for high-rise condominiums in Las Vegas, which for awhile seemed to be limitless, has softened of late (not all projects will pencil out). The rate of price appreciation in Reno and Las Vegas also shows signs of slowing. All in all, Nevada remains a favorable market.

Investment spending continues at a strong clip, adding to the state’s future economic capacity. We hopefully have "rational exuberance," a reflection of well-informed investors. So, we enter 2006 cautiously optimistic of another good year. Having weathered a series of setbacks in 2005, the current expansion has further life.