Business Indicators - June 2007

Business Indicators

by R. Keith Schwer

Housing remains to be the weak sector in an otherwise growing economy, both nationally and in Nevada. Those who argued that there would be no slowdown in 2007 are in full retreat. Similarly, those foretelling doom continue to wait. Of course, the housing slowdown that began in 2006 has stalled some business activities and has created unknowns that cloud the future of some sectors, but all in all, the facts point to the Silver State and the nation continuing to expand at slower, more measured paces.

Nevada job growth continues, up 3.5 percent in February 2007 over the same month a year ago, even though unemployment is up from 4.0 to 4.5 percent over the same period. Still, the unemployment rates for Las Vegas and Reno remain below 5 percent, standing at 4.3 and 4.7 percent, respectively.

Whether housing will stall future overall economic activity remains an open question. But, having seen sharp declines in permitting (down 61.1 and 49 percent for March 2007 relative to March 2006 for Las Vegas and Reno, respectively) and U.S. housing starts off by 23 percent and similar downward adjustments for some months, one can conclude that these severe shocks did not derail the current expansion.

Adjusting to the housing overhang will take time. Prudence suggests that excess supplies may remain in key housing markets, including Las Vegas and Reno for awhile. Statements about having reached the bottom of the housing shortfall are premature. After the fact, one will be able to pinpoint when the recovery began.

Among the key sectors acting as a counterweight to the decline in housing, two merit comment. First, gaming revenue growth is now at small rates, at least for the state of Nevada and Las Vegas. These rates follow a period of exceptional growth. For February 2007, the state gaming revenue is up 2.9 percent and Las Vegas, the state’s major tourism metro, is up 3.6 percent. Reno, having a smaller market and facing strong competition, reported a decline of 4.6 percent for February 2007 relative to February 2006. Second, taxable sales, a major state revenue source, was flat, up 0.9 percent for January 2007 compared with the same month a year ago. Over the same period tax revenues were up slightly for Las Vegas and down slightly for Reno. These more measured rates of expansion in gaming revenue and taxable sales go a long way in describing the slower recent pace that the Silver State now finds itself.