Economist: National economy improving, Nevada still struggling
Nearing the edge of a sunny meadow, the U.S. economy is not out of the woods yet, and Western Nevada’s economy is stuck even deeper in the trees, according to two analysts who work for City National Bank.
At Carson Valley Inn on Monday, Perry Wong, the bank’s senior economist, and Michael Pagano, executive vice president of private client services, assessed what appears to be modest, if tepid, economic growth nationally.
“It’s not too pleasant, but at least we know for sure we’re at the low point,” Wong said. “Now we must try to climb and get that growth back.”
Annual gross domestic product in the U.S. grew just under 2 percent in 2011. Both Wong and Pagano predicted that domestic growth could break 2 percent in 2012, although not by leaps and bounds. Several obstacles have appeared on the horizon.
“Spain, which has 25 percent unemployment, announced yesterday it’s in a recession,” said Pagano. “If there is a recession in Europe, it would come back and affect us.”
The negative outlook in Europe stems from too much government debt, Pagano said. While certain Mediterranean countries are drowning in red ink, the elephant in America’s living room is growing larger and larger.
“The federal debt is very contentious, politicized, publicized and complex,” Pagano said. “We have about $400 billion in discretionary spending, and an annual deficit of $1.1 trillion.”
In other words, discretionary spending makes up a little more than a third of the country’s running deficit. The U.S. government is borrowing vast sums of money to fund daily operations.
Wong put it another way. He said America’s long-term debt of $15 trillion equals the nation’s total GDP.
“The only way to solve the issue is to have a faster growing economy in the range of 4-6 percent,” he said. “If we can’t, then it’s a tax increase.”
While debt continues to weigh down advanced, industrialized nations, developing economies are slowing down. Wong predicted China will fall below 8 percent GDP growth for the first time in years. Higher gas prices are not improving the global outlook.
“It’s not a supply issue. We have an abundance of supply,” he said. “It’s not a demand issue. Global growth is slowing. It’s all political risk and posturing (Iran). If global leadership can address this politically, then we can get rid of that risk.”
Another snag keeping the economy in the woods is negligible growth in consumption. Wong pointed out that the American household’s income-to-debt ratio is around 107 percent.
“The American household is not doing better than the federal government,” he said. “And that constrains spending.”
But money is still flowing into the stock market. Equity indices are up. Companies have been adding jobs, more 200,000 a month in the new year, and unemployment claims are down. Additionally, for the first time in the last decade, manufacturing growth has surpassed total job growth, Wong said.
“Investors are loading money into the market because they think this economy will perform better,” he said. “The market is improving more than what we’d hoped for at this point.”
The Western Nevada region, however, is still trailing the nation. The local economy stagnated and constricted slightly last year. Wong expects slight, if any, growth this year.
“More or less a wash,” he said. “You have an economy that didn’t catch too much strength riding on the national train.”
Besides falling home prices, the region suffers from falling income, Wong said. The nation’s real income grew about 1.2 percent last year, while regionally income fell by nearly the same rate.
“That’s really a big disappointment,” he said.
But two sectors in Western Nevada did see some growth in 2011: leisure and hospitality, and utility, trade and transportation. Wong argued that strengthening the information technology and education sectors in Western Nevada will help drive a recovery.
“Education and healthcare were the only sectors consistently expanding in the last four years,” he said.