Nevada's Economy - March 2012


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Nevada's Economy - March 2012

  1. 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 15 March 2012 To receive this newsletter by e-mail, please subscribe at an Improving Economy BeDragged Down by Higher Oil Prices?The high gasoline and jet fuel prices seen in March and April raise concerns about the possibilitythat high energy prices will lead to yet another economic slowdown. Although high gasolineprices are visible and alarming, current energy market conditions are unlikely to push the U.S.economy back into recession. The gains in oil prices that produce higher gasoline and jet fuelprices have not been enough to trigger a recession.In addition, oil prices are likely to play less of a role in had oil prices not risen, the economy would have merelycurrent U.S. economic conditions than the past. Other slowed down rather than downshifted into prices—particularly those for natural gas—have In early 2012, oil prices have not shown the sharpnot moved with prices for oil and petroleum products. increases that signal that a recession is imminent. ThatThe U.S. economy has become much less dependent is, oil prices have not risen to the point where they areon energy. As a result, high oil prices mean much less higher than they have been during the past three years.headwind to overall economic activity than in the past. In addition, the future market shows oil prices fallingCurrent Oil Prices Are Not at Recession-Producing from current levels, rather than heading upward to theHeights heights necessary to cause a recession.The United States has seen a number of episodes in Falling Natural Gas Priceswhich oil prices rise sharply and are higher than had History suggests oil and natural gas prices movebeen seen in the previous three years. These episodes together. In fact, economists Stephen Brown andhave preceded all but two of the U.S. recessions since Mine Yücel found weekly movements in natural gasWorld War II. The two exceptions are the 1960 and prices from 1994 through 2007 are well explained1970 recessions.1 by movements in oil prices in a model that takes intoSharply rising oil prices also provided false signals in account seasonality, variations in weather, natural gasthe mid-1990s and from 2002 to 2005. In addition, in storage, and disruptions in natural gas productionmost attribute the 2008-2009 recession to a financialmarket meltdown rather than the 2007 oil price spike.Nonetheless, economist James Hamilton argues that This report is commissioned by Commerce Real Estate Solutions • 801-322-20001 James D. Hamilton, “Causes and Consequences of theOil Shock of 2007-08, Brookings Papers on Economic Activity,”Spring 2009, pp. 215-84.
  2. 2. nevada’s Economy March 2012caused by hurricanes in the Gulf of Mexico.2 That relationship between movements in oil prices andhistorical relationship seems to have broken down as energy purchases as a share of U.S. GDP has changednatural gas prices have diverged from oil prices since considerably since the 1970s and 80s. In the 1970s andearly 2009—continuing to fall as oil prices rise. early 1980s, there was a tight relationship betweenThe divergence of natural gas prices from oil prices oil prices and overall energy prices. In addition,has been created by the technological revolution in considerably more energy was used to produce GDPproduction of natural gas from shale formations. The than is the case today. As a result, energy purchases ascombination of horizontal drilling with hydraulic a share of U.S. GDP moved relatively tightly with oilfracturing (aka fracking) has led to a substantial prices.reduction in the cost of producing natural gas from In early 2012, however, energy purchases as a share ofshale formations.3 GDP have not moved nearly as tightly with oil prices.As a result of the shale gas revolution combined with That fact, suggests that the sharp rises in oil prices seenthe weakness of the industrial sector coming out of in early 2012 will not have nearly as much impact onthe recession, the United States is awash in natural overall economic activity as previous history mightgas supplies, and natural gas prices have been pushed extremely low levels. One consequence of recent Oil Price Shocks and U.S. Economic Activity: Thedeclines in natural gas prices is that overall prices paid New Wisdomfor energy in the United States declined in the first In early 2012, the sharp increases in gasoline and jetthree months of 2012—even as oil prices were rising. fuel prices brought about by higher crude oil pricesReduced U.S. Energy Dependence have raised concerns about the possibility of slowingU.S. economic output also has become substantially economic activity. Because natural gas prices haveless dependent on energy consumption over the past declined since mid-2011, however, the impact of oil40 years. In 1973, 15,414 Btu were required to produce price increases on the overall price of energy has beeneach dollar of U.S. gross domestic product (GDP). In substantially blunted. In addition, reduced U.S. energy2011, only 7,327 Btu were required to produce each dependence means that oil price movements have notdollar of U.S. GDP.4 That represents a reduction of led to large changes in energy purchases as a share52.4 percent. of GDP. These facts do not lessen the painful feeling at the pump, but they suggest that energy prices areWhen we combine the effect of reduced dependence creating much less headwind to overall U.S. economicon energy with the divergence of overall energy prices activity than they did in the past.from those for oil, an interesting picture emerges. The2 Stephen P. A. Brown and Mine K. Yücel “What DrivesNatural Gas Prices?” The Energy Journal, 29(2), 2008.3 See Stephen P. A. Brown, “Abundant Natural GasCould Mean a Paradigm Shift in U.S. Energy Markets andPolicy,” Resources, Summer 2010.4 GDP is measured in 2005 constant dollars.Commerce Real Estate Solutions |
  3. 3. Will an Improving Economy Be Dragged Down by Higher Oil Prices?Nevada Economic ConditionsU.S. economic growth was fairly strong in fourth February than a year earlier. Taxable sales werequarter 2011. Consumer spending and employment up by 4.8 percent in January above a year earlier.were fairly strong in first quarter 2012, but indicators According to the establishment survey conductedthat more closely track GDP—such as personal by Nevada’s Department of Employment, Trainingincome—show slower growth. Nevada’s tourism and and Rehabilitation (DETR), Nevada’s employmentgaming continue to drive the state’s economic recovery. declined in February. Nonetheless, the statewideNevada’s construction sector remains at relatively unemployment rate decreased from 12.9 percent inlow levels. Nevada’s employment fell in February, January to 12.1 percent in February because DETR’sbut reduced labor force participation meant a lower household survey showed employment gains, Table 2.unemployment rate. Clark County’s Economy Remains Slightly AheadU.S. Economy Showing Mostly Positive Signs Clark County’s economy is expanding at a slightlyU.S. real GDP grew at an annualized rate of 3.0 faster pace than the state’s. Compared to a year earlier,percent during fourth quarter 2011, representing visitor volume and gaming revenue for February werea substantial gain over the third-quarter rate of up by 5.2 percent and 5.5 percent, respectively. Taxable1.8 percent. Consumption spending and inventory sales for January were 3.5 percent above those for ainvestment were particularly strong. Residential year earlier. Residential construction permits rose fromand business fixed investment slowed. Imports and January to February, and commercial constructiongovernment spending made negative contributions. permits remained at a low level. DETR’s establishmentU.S. nonfarm employment rose by only 120,000 jobs survey shows Las Vegas metropolitan employment fellin March after three straight months in which the in February. Nonetheless, the region’s unemploymentgains were more than 220,000 jobs per month. The rate fell from 13.0 in January to 12.2 percent inunemployment rate slipped to 8.2 percent in March February—mostly because DETR’s household surveyas labor force participation fell. Consumer sentiment showed employment gains, Table 3.increased in March, but consumer confidence slipped. Washoe County’s Economy Showing ImprovementSales of existing homes slipped in February, but were8.8 percent higher than a year earlier. Sales of new Washoe County’s economy showed some rose slightly from extremely low levels. Personal Compared to a year earlier, February visitor volumeconsumption expenditures increased in February was only down 2.4 percent. Gaming revenues were Story continues after graphsfor the eighth straight month, and retail sales rosein March for the tenth straight month. The KansasCity Financial Stress Index remained below its long-run average in March, indicating a lack of financialheadwinds to economic growth. Nonetheless, theNational Federation of Independent Businesses reportssmall businesses are having more difficulty obtainingfinancing, Table 1.Nevada Economy Continues to Show UnevenGrowthThe Nevada economy continues to show uneven signsof growth. Visitor volume took a seasonal declinein February but was 4.5 percent higher than a yearearlier. Gaming revenue was 5.7 percent higher in Issue 15 | ©Copyright 2012 - All Rights Reserved
  4. 4. nevada’s Economy March 2012 U.S. Date Units Current Previous Change Year Ago ChangeTable 1 Employment 2012M03 million, SA 132.821 132.701 0.1% 130.922 1.5% Unemployment Rate 2012M03 %, SA 8.2 8.3 -0.1% 8.9 -0.7% Consumer Price Index 2012M03 82-84=100, NSA 229.1 228.4 0.3% 223.2 2.6% Core CPI 2012M03 82-84=100, NSA 228.4 227.9 0.2% 223.4 2.3% Employment Cost Index 2011Q4 89.06=100, SA 114.7 114.2 0.4% 112.8 1.7% Productivity Index 2011Q4 2005=100, SA 110.7 110.4 0.2% 110.5 0.1% Retail Sales 2012M02 $billion, SA 407.8 403.5 1.1% 383.0 6.5% Auto and Truck Sales 2012M03 million, SA 14.31 15.04 -4.8% 13.02 9.9% Housing Starts 2012M02 million, SA 0.698 0.706 -1.1% 0.518 34.7% Real GDP*** 2011Q4 2000$billion, SA 13,429.9 13,331.6 3.0% 13,216.1 1.6% U.S. Dollar 2012M03 97.01=100 98.727 98.121 0.6% 96.944 1.8% Trade Balance 2012M02 $billion, SA -46.025 -52.522 -12.4% -45.381 1.4% S and P 500 2012M03 monthly close 1,408.47 1,365.68 3.1% 1,325.83 6.2% Real Short-term Rates* 2012M03 %, NSA -3.82 -3.21 -0.6% -4.50 0.7% Treasury Yield Spread 2012M03 %, NSA 2.09 1.88 0.2% 3.31 -1.2% Nevada Date Units Current Previous Change Year Ago ChangeTable 2 Employment 2012M02 000 employees 1,113.2 1,117.1 -0.3% 1,108.8 0.4% Unemployment Rate* 2012M02 %, NSA 12.1 12.9 -0.8% 13.8 -1.7% Taxable Sales 2012M01 $billion 3.154 4.216 -25.2% 3.009 4.8% Gaming Revenue 2012M02 $million 932.17 1,038.41 -10.2% 881.83 5.7% Passengers 2012M02 passengers 3.418 3.480 -1.8% 3.280 4.2% Gasoline Sales 2012M01 million gallons 85.12 90.07 -5.5% 89.76 -5.2% Visitor Volume 2012M02 million visitors 3.821 3.859 -1.0% 3.656 4.5% Clark County Date Units Current Previous Change Year Ago ChangeTable 3 Employment 2012M02 000 employees 799.5 802.9 -0.4% 797.3 0.3% Unemployment Rate* 2012M02 %, NSA 12.2 13.0 -0.8% 14.0 -1.8% Taxable Sales 2012M01 $billion 2.332 2.992 -22.1% 2.252 3.5% Gaming Revenue 2012M02 $million 812.14 925.49 -12.2% 769.53 5.5% Residential Permits 2012M02 units permitted 460 317 45.1% 246 87.0% Commercial Permits 2012M02 permits 18 21 -14.3% 10 80.0% Passengers 2012M02 million persons 3.108 3.176 -2.1% 2.916 6.6% Gasoline Sales 2012M01 million gallons 59.50 61.12 -2.7% 63.10 -5.7% Visitor Volume 2012M02 million visitors 3.326 3.398 -2.1% 3.160 5.2% Washoe County Date Units Current Previous Change Year Ago ChangeTable 4 Employment** 2012M02 000 employees 186.2 185.8 0.2% 186.6 -0.2% Unemployment Rate* 2012M02 %, NSA 12.2 13.0 -0.8% 13.5 -1.3% Taxable Sales 2012M01 $billion 0.397 0.579 -31.5% 0.374 6.1% Gaming Revenue 2012M02 $million 60.26 53.73 12.2% 55.73 8.1% Residential Permits 2012M02 units permitted 42 95 -55.8% 49 -14.3% Commercial Permits 2012M02 permits 4 11 -63.6% 11 -63.6% Passengers 2012M02 million persons 0.265 0.259 2.3% 0.299 -11.4% Gasoline Sales 2012M01 million gallons 13.02 14.49 -10.2% 13.45 -3.2% Visitor Volume 2012M02 million visitors 0.314 0.278 12.8% 0.321 -2.4%*Change in percentage rate**Reflects the Reno-Sparks MSA which includes Washoe and Storey Counties***Recent growth is an annualized rateSources: Nevada Department of Taxation; Nevada Department of Employment, Training, and Rehabilitation; UNR Bureau of Business and EconomicResearch; UNLV Center for Business and Economic Research; McCarran International Airport; Reno/Tahoe International Airport; Las VegasConvention 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 AdjustedCommerce Real Estate Solutions |
  5. 5. Nevada Economic Conditionsup by 8.1 percent over the same period. Residentialand commercial construction permits fell in February.According to DETR’s establishment survey, Reno-Sparks employment rose by 400 jobs (0.2 percent) fromJanuary to February. The Reno-Sparks unemploymentrate fell from 13.0 percent in January to 12.2 percentin February because DETR’s household survey for theregion showed stronger employment gains than itsestablishment survey, Table 4.Nevada Economic Outlook in BriefDriven by strong gains in consumer spending andinventory investment, national economic conditionsimproved in fourth quarter. Spending growth remainedrelatively strong in early 2012, but the employmentgrowth slipped in March. Southern Nevada’s tourism,hospitality, and gaming industries continue to grow,but other sectors aren’t contributing much. In WashoeCounty, some favorable economic signs were seenin February. Nevada’s construction remains close tobottom. Issue 15 | ©Copyright 2012 - All Rights Reserved
  6. 6. This information is provided compliments of Michael M. Lawson President and CEO of Commerce Real Estate Solutions Commerce Real Estate Solutions Mike Hillis, CCIM, SIOR 3980 Howard Hughes Parkway, Suite 100 Las Vegas, NV 89169 Managing Partner of Commerce Real Estate Solutions, Las Vegas Tel (702) 796-7900 • Fax (702) 796-7920 To receive this newsletter by e-mail, please subscribe at This report has been prepared solely for information purposes. It does not purportCommerce is a regional real estate firm with international ties, to be a complete description of thededicated first and foremost to our clients. With the industry’s markets or developments contained inpremier professionals, and industry leading technology, our mission this to exceed our clients’ expectations through service excellence. The information contained in this report,For further information on the Nevada commercial real estate while not guaranteed, has been securedmarket, visit or call 702-796-7900. from sources we believe to be reliable.