Business Indicators - February 2007

Business Indicators

by R. Keith Schwer

Residential construction and consumer spending grew at above average rates over the first five years of the new century. Starting at mid-year 2006, however, new home construction took a sharp downturn. A national housing recession is underway, though there are marked differences among regions of the country. Permitting is down by double-digit rates from year ago levels in Las Vegas and Reno.

This downturn, while well-developed, has had only small effects elsewhere in the economy to date. For example, Nevada gaming revenue and taxable sales differ little from same-month year-ago levels, gaming revenue is up 0.4 percent and taxable sales is down 0.6 percent.

Weakness in housing should continue thoroughout most of 2007; and the likelihood is that other sectors of the economy will avoid the sharp contraction we are seeing in housing. Though the odds of a national recession are up, the economic outlook for the Silver State remains guardedly optimistic for 2007.

Clark County shows weakness only in housing at this time, though Washoe County shows a marked decline in housing, and modest declines in travel and tourism. However, Las Vegas and Reno both show strong growth in other sectors. Meanwhile, rural Nevada, moving with the fortunes of mining, remains bright.

The U.S. economy continues to adjust to the shortfall in auto and housing at nearly nine percent of U.S. spending. Softness in these two large spending categories and the impact of price pressure should keep the Federal Reserve balancing the direction of monetary policy. As a result, interest rates should remain close to current levels. The nation’s outlook for 2007 is slower growth.