Business Indicators - December 2005

Business Indicators

by R. Keith Schwer

The strong surge of energy prices in recent months follows a wave of increased demand for energy worldwide. This stepped-up demand is largely the result of marked increases in growth among Asian countries, mainly China and India. Energy-intensive industries and traders scrambled to secure sources, pushing prices up further. Then, two hurricanes shut off some Gulf oil production and took some refineries off line, adding to further shortages and higher prices. Though the economic impact could have been far worse and some production and refining remain off line, the vulnerability of the national and regional economies to energy shortfalls is evident.

Increased energy prices have sent major consumer and producer price indexes upward. The September consumer price index (CPI) grew at an annual rate of 4.7 percent, with energy accounting for more than 90 percent of the increase. Higher energy prices rationed the available supply to the most valued uses. Further price effects are likely as energy costs move through the economy. These subsequent impacts will surely be less severe than those of the 1970s and 1980s, when the economy used a substantially greater energy-per-dollar of gross domestic product (GDP) than today. Still, the uncertainty of future energy prices remains a concern.

Destructive hurricanes and the subsequent disruptions will likely shave only a fraction of a percent off the nation’s growth in 2005. However, rebuilding will add stimulus to activity in 2006.

Late summer numbers for Nevada were mixed, though this follows a period of sustained strong growth. August taxable sales, air passengers and visitor volume declined from the previous month. These one-month declines, however, accompany strong annual growth rates. As a result, the Silver State continues to post strong growth.

Looking ahead, the outlook is shaded by an increasing list of possible adverse effects; that is, more things on the horizon could go bad than good. Nevertheless, after all is said, the Silver State’s future remains bright.