Nevada Economy

1. A monthly report produced for CommerCe reAl estAte solutions by stephen P. A. Brown, PhD, Center for Business & economic research university of nevada, las Vegas
Issue 5 may 2011
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Is stagflatIon at the Door?
the u.s. economy seems to be facing a troubling mix of rising prices and weakening growth.
the consumer price index (CPi) has risen considerably over the past six months, showing
an annualized gain of 5.2 percent from november through may. much of the gains have
been the result of rising food and energy prices. nonetheless, Core CPi (which excludes
the volatile food and energy components) is also showing signs of rising, with an annualized
gain of 2.1 percent from november through may.
At the same time, the growth of GDP downshifted Reserve System to keep the economy growing through
to 1.8 percent at annual rate in first quarter 2011, expansionary monetary policy resulted in high rates
and industrial production did poorly in the first two inflation.
months of second quarter 2011. Rising prices and the
appearance of slowing economic activity have some Today, oil price shocks have much less of an impact
observers raising the possibility that stagflation is at the on business productivity. U.S. businesses are much
door. Stagflation is a situation in which the inflation less dependent on oil use and have considerably
rate is high and economic growth is slow. Stagflation more experience with oil price shocks. Consumption
raises a dilemma for policymakers because actions spending has remained sensitive to oil prices, and
designed to lower inflation may worsen economic the Federal Reserve System has responded to weak
growth and vice versa. economic activity with decidedly expansionary
monetary policy.
Stagflation was a problem for the U.S. economy in
the 1970s when rising oil prices led to both increased Domestic Demand and economic growth
inflation and weak economic activity. Are we at the Unlike the 1970s, the weakness in economic activity is
beginnings of a new era of stagflation? In part, the attributable to falling demand rather than productivity
answer is no, and in part, the answer depends on the shocks—even though the pace of industrial production
conduct of U.S. monetary policy.
Differences in Productivity growth This report is commissioned by
Commerce Real Estate Solutions
In the 1970s, U.S. business productivity dropped when info@comre.com • 801-322-2000
relatively inflexible business operations were confronted
with sharply higher oil prices. As a consequence,
U.S. economic activity fell. Attempts by the Federal

2. neVADA’s EConomy may 2011
is slow. In fourth quarter 2010, the resurgence of recent recession and weak recovery. It has held short-
domestic demand and improved net exports were the term interest rates well below expected inflation and
keys to the growth of real GDP. In first quarter 2011, substantially boosted monetary liquidity. Even as the
their decline was also responsible for the weakness. economy has stumbled, monetary ease has contributed
Given the sharp increase to high gold prices and the rising inflationary pressure
signs of weakness in inventories that that we have seen in the past six months.
occurred in first quarter,
could dissipate after Over the coming months, the Federal Reserve
second quarter could
second quarter show further weakness. System will need to begin to reverse its financial ease
Businesses are likely if it is to prevent accelerating inflation. The Federal
to reduce inventories. Early readings of consumer Reserve System’s decision not to undertake a third
spending in second quarter—such as real personal round of quantitative easing is at best a baby step in
consumption spending and retail sales—suggest that direction. The first two rounds of quantitative
continued weakness. easing had relatively little effect on the economy, as
is demonstrated by the fact that the maturities of
Signs of weakness could dissipate after second quarter. the outstanding government debt and the private
Some weakness in U.S. industrial production is owed holdings of that debt remained basically the same as
to disrupted supply chains from Japan, which are each other after the easing. In addition, the Federal
expected to resolved in the next few months. Rising Reserve System is not withdrawing the first or second
food and energy prices, falling house prices and weak rounds of its previous quantitative easing. It is just not
economic growth do discourage discretionary spending, undertaking a third round.
but domestic spending seems likely to improve in the
second half of the year. Consumption spending and If the Federal Reserve System wants to head off
business fixed investment are particularly likely to incipient inflation, it will need to start raising short-
strengthen. Government spending is declining as term interest rates from their historical lows in the
federal stimulus spending comes to an end, and states near future. Such increases will have little effect on
move to close their budget deficits. As the result of a the pace of economic activity because investment and
weaker dollar, exports should grow faster than imports. consumption spending are much more sensitive to
Domestic firms will shift from reducing inventories to economic expectations than to short-
increasing them. Those developments should lead to an term interest rates. If the Federal
improving economy. Reserve System does not take
such steps, we will certainly
monetary Policy and Inflation see the inflation part of
stagflation.
There is no doubt that the Federal Reserve System has
conducted an easy-money policy in response to the
nevada economic Conditions
With the U.S. economy showing definite signs of reliant—gaming, hospitality and tourism. Mining and
slowing in the first half of 2011, the Nevada economy some business services are also making contributions.
continues to grow but at a somewhat slower pace than Nevada’s real estate markets continue to see an
was established in the first three months of 2011. The overhang of vacant properties, and a recovery in those
state’s economic recovery remains concentrated in the sectors is still waiting for strong growth of the Silver
sectors on which the Nevada economy is most heavily State’s economic base to be reestablished.
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3. nevaDa eConomIC ConDItIons
u.s. economic growth showing signs of slowing Pace of economic growth slowing in Clark County
The pace of U.S. economic growth slowed noticeably in The pace of economic growth in Clark County seems
first quarter 2011, with real GDP growth dropping to to have slowed a bit in April. Compared to a year
1.8 percent at an annualized rate—considerably weaker earlier, April visitor volume was up by 4.5 percent, and
than the 3.1 percent figure posted for fourth quarter gaming was down by 1.0 percent. In April, taxable
2010. Providing evidence of continued economic sales were 9.6 percent above those for the same month
weakness, industrial production fell in April and rose a year earlier. Residential construction permits slipped
by only 1.3 percent at an in April. Las Vegas employment rose by 1,100 jobs
With u.s. consumption annualized rate in May. (0.1 percent) in April, and the unemployment rate
spending slowing, the U.S. nonfarm employment fell from 13.3 percent to 12.1 percent, as labor-force
nevada economy shows rose by a meager 54,000 participation declined, Table 3.
mixed signs. jobs (seasonally adjusted)
in May. As a result of poor Washoe County economic activity remains mixed
job growth, the U.S. unemployment rate ticked up to Washoe County’s economic indicators remain mixed.
9.1 percent. With weaker job growth, falling house Compared to a year earlier, April visitor volume
prices and higher food and energy costs, consumer was up by 1.1 percent and gaming was down by 0.6
confidence slipped in May. Real personal consumption percent. Residential construction permits slipped in
spending rose only slightly in April, and retail sales fell April. Reno-Sparks employment rose by 300 jobs (0.2
in May. Sales of new homes rose in April, while sales percent) in April, and the unemployment rate fell from
of existing homes slipped. The Kansas City Financial 13.1 percent in March to 11.7 percent, as labor-force
Stress Index edged downward in May and remained participation dropped, Table 4.
below its long-run average, suggesting that the
financial headwinds to U.S. economic growth remain nevada economic outlook
low. In contrast, small businesses reported somewhat
Despite concerns that higher food, energy prices and
increased difficulty obtaining loans, Table 1.
lower housing prices are slowing the national economy
nevada economy showing mixed signs and reducing discretionary spending, the Nevada
economy is still showing signs of recovery—albeit at
With U.S. consumption spending slowing, the Nevada a bit slower pace than during the first three months
economy shows mixed signs. Although visitor volume of 2011. With the U.S. economy downshifting, the
was up in April, compared to a year earlier, gaming continued growth of Nevada’s tourism, hospitality
revenues were down. Taxable sales were up by 9.6 and gaming depends more heavily on a continued
percent. From March to April, Nevada employment economic recovery in the West. Nevada’s real estate
rose by 3,600 jobs (0.3 percent), and the unemployment and construction sectors still show signs of weakness.
rate fell from 13.2 to 11.9 percent—the latter mostly the
result of declining labor-force participation, Table 2.
Issue 5 | ©Copyright 2011 - All Rights Reserved

4. neVADA’s EConomy may 2011
u.s. Date units Current Previous Change year ago Change
table 1
employment 2011M5 million, sA 131.043 130.989 0.0% 130.173 0.7%
unemployment rate 2011M5 %, SA 9.1 9.0 0.1% 9.6 -0.5%
Consumer Price index 2011M5 82-84=100, NSA 224.8 224.4 0.2% 217.3 3.4%
Core CPi 2011M5 82-84=100, NSA 224.4 223.7 0.3% 221.0 1.5%
employment Cost index 2011Q1 89.06=100, SA 113.2 112.8 0.4% 111.4 1.6%
Productivity index 2011Q1 2005=100, SA 112.6 112.4 0.2% 111.4 1.1%
retail sales 2011M5 $billion, sA 387.117 388.049 -0.2% 359.345 7.7%
Auto and truck sales 2011M5 million, sA 11.75 13.13 -10.5% 11.62 1.1%
Housing starts 2011M4 million, sA 0.523 0.585 -10.6% 0.687 -23.9%
real GDP*** 2011Q1 2000$billion, SA 13,441.9 13,380.7 1.8% 13,138.8 2.3%
u.s. Dollar 2011M5 97.01=100 95.500 95.543 0.0% 104.668 -8.8%
trade Balance 2011M4 $billion, sA -43.680 -46.824 -6.7% -41.466 5.3%
S and P 500 2011M5 monthly close 1,345.20 1,363.61 -1.4% 1,089.41 23.5%
Real Short-term Rates* 2011M5 %, NSA -0.13 -0.36 0.2% 0.30 -0.7%
treasury Yield spread 2011M5 %, NSA 3.13 3.40 -7.9% 3.26 -4.0%
nevada Date units Current Previous Change year ago Change
table 2
employment 2011M4 000 employees 1,118.5 1,114.9 0.3% 1,119.5 -0.1%
unemployment rate* 2011M4 %, NSA 11.9 13.2 -1.3% 14.9 -3.0%
taxable sales 2011M3 $billion 3.649 2.924 24.8% 3.329 9.6%
Gaming revenue 2011M4 $million 806.05 958.73 -15.9% 810.74 -0.6%
Passengers 2011M4 passengers 3.824 3.989 -4.1% 3.759 1.7%
Gasoline sales 2011M3 million gallons 91.47 79.63 14.9% 91.69 -0.2%
Visitor Volume 2011M4 million visitors 4.212 4.278 -1.5% 4.051 4.0%
Clark County Date units Current Previous Change year ago Change
table 3
employment 2011M4 000 employees 804.6 803.5 0.1% 807.1 -0.3%
unemployment rate* 2011M4 %, NSA 12.1 13.3 -1.2% 15.1 -3.0%
taxable sales 2011M3 $billion 2.738 2.174 26.0% 2.499 9.6%
Gaming revenue 2011M4 $million 682.95 835.68 -18.3% 690.19 -1.0%
residential Permits 2011M4 units permitted 377 454 -17.0% 537 -29.8%
Commercial Permits 2011M4 permits 9 31 -71.0% 19 -52.6%
Passengers 2011M4 million persons 3.524 3.634 -3.0% 3.446 2.3%
Gasoline sales 2011M3 million gallons 63.14 55.28 14.2% 63.34 -0.3%
Visitor Volume 2011M4 million visitors 3.654 3.722 -1.8% 3.497 4.5%
Washoe County Date units Current Previous Change year ago Change
table 4
employment** 2011M4 000 employees 187.9 187.6 0.2% 190.0 -1.1%
unemployment rate* 2011M4 %, NSA 11.7 13.1 -1.4% 14.4 -2.7%
taxable sales 2011M3 $billion 0.452 0.359 25.8% 0.443 2.1%
Gaming revenue 2011M4 $million 64.11 61.15 4.8% 64.50 -0.6%
residential Permits 2011M4 units permitted 38 57 -33.3% 109 -65.1%
Commercial Permits 2011M4 permits 12 5 140.0% 7 71.4%
Passengers 2011M4 million persons 0.296 0.349 -15.2% 0.310 -4.5%
Gasoline sales 2011M3 million gallons 13.44 12.41 8.2% 14.27 -5.8%
Visitor Volume 2011M4 million visitors 0.357 0.352 1.6% 0.361 -1.1%
*Change in percentage rate
**Reflects the Reno-Sparks MSA which includes Washoe and Storey Counties
***Recent growth is an annualized rate
Sources: Nevada Department of Taxation; Nevada Department of Employment, Training, and Rehabilitation; UNR Bureau of Business and Economic
Research; UNLV Center for Business and Economic Research; McCarran International Airport; Reno/Tahoe International Airport; Las Vegas
Convention and Visitors Authority; Reno-Sparks Convention and Visitors Authority; U.S. Department of Commerce; U.S. Bureau of Labor Statistics;
U.S. Census Bureau; U.S. Federal Reserve Bank.
Note: NSA = Not Seasonally Adjusted, SA = Seasonally Adjusted
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