The Indy Outlook: Observations on the Nevada Economy and Revenues

by Alan Schlottmann

The positive forecasts for state revenues by the Economic Forum are certainly welcome news for the Legislature. As discussed in the excellent summary article on the revenue forecasts, the additional revenue will come from the broad range of tax instruments in Nevada rather than from a single revenue source that was simply underestimated in the original forecasts.

As the Legislature now contemplates how to utilize these extra funds, it might prove useful to identify some of the underlying characteristics of the Nevada economy that will influence success or failure of new legislative initiatives. There are three items that should be considered.

First, it needs to be recognized that the Nevada economy takes a long time to recover from any negative event such as a recession or major downturn in the business cycle. The Nevada economy tends to pick up from an economic downturn only after most states have begun to grow again and, more importantly, at a slower initial pace. As noted in the underlying data by the Economic Forum:

In Nevada, where economic recovery started later than the other 49 states and was initially considerably slower than what was seen elsewhere in the nation, signs of recovery have become more evident in 2016. Though it took more than two years longer than the nation as a whole to do so, Nevada’s job market finally recovered the 186,400 jobs lost during the Great Recession by September 2016 (page 6 of full Forum report).

Thus, the Legislature needs to at least be aware of the future potential for any new long-term funding commitments to run into funding shortfalls. As pointed out in the column by John Restrepo, the primary job sector in Nevada remains hospitality and leisure. This implies that Nevada depends upon the discretionary income of visitors and business conventions as a significant factor in its success. This observation also helps to explain why the recovery in Nevada started later than in other states. For example, the Economic Forum has specifically noted that “further contributing to the economic recovery in Nevada is the growth in visitors since the end of the Great Recession (p.7),”

Second, Nevada unfortunately remains one of the states with the highest rate of involuntary part-time workers. These are workers who are officially counted as employed but actually are under economic pressure in that they are “working less than 35 hours per week who want to work full time, are available to do so, and gave an economic reason (their hours had been cut back or they were unable to find a full-time job) for working part time.” Thus, while the official unemployment rate for Nevada (second quarter of 2016 through first quarter of 2017 averages) is 5.6 percent the broader measure of labor force underutilization is more than double, 11.9 percent. The importance of involuntary part-time workers in the Nevada economy is shown in the chart below from the US Bureau of Labor Statistics (BLS).

These involuntary part-time workers are often the first to be affected in economic downturns with job loss leading to unanticipated increases in needs for social services. This potentially negative characteristic of the Nevada economy needs to be kept in mind by the Legislature in planning for health and human services.

Third, and finally, the developing national trend of job losses in retail trade even with a growing national economy might become a problem for Nevada. Because of the nature of our economy, Nevada has a higher percentage of retail jobs (per 1,000 workers) compared to national averages as shown below (BLS data):

State	Employment per thousand jobs	Relative to national fraction (of 1.00)
Arizona	33.9	1.05
California	27.6	0.86
Nevada	39.0	1.21
Utah	31.6	0.98

Thus, the Legislature should be aware of a potential need for funding flexibility in workforce development initiatives and provisions for health and humans services if the recent retail job losses become an actual longer term trend for Nevada.

This column’s author, Dr. Alan Schlottmann, Ph.D., is a Professor of Economics at UNLV’s Lee Business School.