Business Indicators - October 2006

Housing, a strong component of the economy the past few years, shows signs of weakening, both nationally and in Nevada. And, since housing generates more spending locally than many other activities, we should expect slower growth for the last half of 2006. Whether a slower housing market spills over to overall consumer spending remains to be seen.

In Nevada, the Clark County (Las Vegas) numbers are decidedly weaker than the Washoe County (Reno) numbers. All but one of the monthly indicators posted weaker numbers. Only taxable sales posted improvement for month-over-month changes, up a modest 2.0 percent. Reno, on the other hand, showed stronger growth in taxable sales, up 8.2 percent (month-over-month) and 6.4 percent for the same month (year-over-year).

Overall strong performance in the Silver State for the first half of 2006 should keep year-end numbers in the positive category, though the outlook is for a more modest last half of 2006.

Concern for inflation should motivate the Federal Reserve to keep interest rates up in the months ahead. The increasing discussion among Fed players, including Chairman Ben Bernanke, is "inflation targeting," and there is reason to believe inflation concern will likely come first. That is, faced with a slowing economy, the Fed is loath to let up on its targeted Fed-Fund rate for fear of letting inflation get out of hand.

All in all, we expect that Nevada will experience more modest expansion ahead, but should continue to rank among the better-performing state economies in the U.S.