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 To receive this newsletter via e-mail, please contact firstname.lastname@example.orgIs 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, showingan annualized gain of 5.2 percent from november through may. much of the gains havebeen the result of rising food and energy prices. nonetheless, Core CPi (which excludesthe volatile food and energy components) is also showing signs of rising, with an annualizedgain of 2.1 percent from november through may.At the same time, the growth of GDP downshifted Reserve System to keep the economy growing throughto 1.8 percent at annual rate in first quarter 2011, expansionary monetary policy resulted in high ratesand industrial production did poorly in the first two inflation.months of second quarter 2011. Rising prices and theappearance of slowing economic activity have some Today, oil price shocks have much less of an impactobservers raising the possibility that stagflation is at the on business productivity. U.S. businesses are muchdoor. Stagflation is a situation in which the inflation less dependent on oil use and have considerablyrate is high and economic growth is slow. Stagflation more experience with oil price shocks. Consumptionraises a dilemma for policymakers because actions spending has remained sensitive to oil prices, anddesigned to lower inflation may worsen economic the Federal Reserve System has responded to weakgrowth and vice versa. economic activity with decidedly expansionary monetary policy.Stagflation was a problem for the U.S. economy inthe 1970s when rising oil prices led to both increased Domestic Demand and economic growthinflation and weak economic activity. Are we at the Unlike the 1970s, the weakness in economic activity isbeginnings of a new era of stagflation? In part, the attributable to falling demand rather than productivityanswer is no, and in part, the answer depends on the shocks—even though the pace of industrial productionconduct of U.S. monetary policy.Differences in Productivity growth This report is commissioned by Commerce Real Estate SolutionsIn the 1970s, U.S. business productivity dropped when email@example.com • 801-322-2000relatively inflexible business operations were confrontedwith sharply higher oil prices. As a consequence,U.S. economic activity fell. Attempts by the Federal
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 pressuresigns 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 couldsecond 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. CommERCE REal ESTaTE SoluTionS | Comre.Com
neVADA’s EConomy may 2011 u.s. Date units Current Previous Change year ago Changetable 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 Changetable 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 Changetable 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 Changetable 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 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 | Comre.Com
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 3800 Howard Hughes Parkway, Suite 1200 Las Vegas, NV 89169 managing Partner Of COmmerCe real estate sOlutiOns, las Vegas Tel (702) 796-7200 • Fax (702) 796-7920 www.comre.com tO reCeiVe this newsletter by e-mail, Please COntaCt infO@COmre.COm 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 material.is 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 www.comre.com or call 702-796-7200. from sources we believe to be reliable.