Is Nevada’s economy booming or middling? It depends on the questions, who you ask

Looking at traditional indicators to get a sense of how Nevada’s economy is faring is a bit like betting on roulette.

Betting on black — or in this case finding a positive metric? You may or may not come out on top because the state’s economy is filled with mixed signals.

Good news: The state has seen 32 consecutive months of more than $1 billion in statewide gaming revenue. Bad news: Nevada has the highest unemployment rate in the nation — and has for months. Good news: Record tax collections have furnished the largest budget in state history. Bad news: Nevada ranks near-bottom nationally for average wages and wage growth.

The national economy has been similarly difficult to parse.

While the annual inflation rate has declined significantly since last fall, prices continue to rise and remain far above where they stood prior to the COVID-19 pandemic. The Federal Reserve, meanwhile, continues to navigate a soft landing for the economy through setting interest rates at a high enough level to combat inflation without causing a spike in unemployment. Economists seem bullish about the chances of avoiding a recession — particularly when compared with projections from last year.

Last week, members of the Economic Forum — an appointed five-member board of finance and business professionals who approve revenue forecasts used to set the state’s budget — and state analysts met to discuss the outlook of the Nevada economy and the performance of tax revenues.

While the forum did not make tax revenue projections or decisions that affect the state budget at its December meeting, it nonetheless provided a detailed look into Nevada’s post-pandemic economy and more explanation about how economic indicators can paint very different pictures of the state’s economy.

Below, we use details from the meeting and other Nevada economic metrics to answer questions about Nevada’s economy, as well explain The Nevada Independent’s decision to retire our Economic Indicators Dashboard.

Why is Nevada last in unemployment?

Nevada’s headline unemployment rate in October was 5.4 percent, the highest rate in the country, according to the U.S. Bureau of Labor Statistics. That rate is just two and half years removed from the early months of the pandemic, when the state’s unemployment rate shot up to a record high of roughly 30 percent during a recession that economists have described as one of the deepest and shortest in the nation’s history.

The initial recovery occurred at a blistering pace. Businesses reopened. Travel resumed. Workers returned to work. But for the past two years, Nevada’s unemployment numbers have been stagnant. Between November 2021 and October 2023, Nevada’s unemployment rate hovered between 5.2 percent and 5.6 percent, often ranking as the worst in the nation despite the state recording nation-leading job growth.

During Tuesday’s Economic Forum meeting, David Schmidt, chief economist at the Department of Employment, Training and Rehabilitation, described the state’s current jobs trend as “good unemployment.”

“I would have thought that our unemployment rate would be creeping down a bit more than it has, but it's been offset by people coming into the labor force, which, I like to argue, it's good unemployment,” he said. “I would rather have 5.5 percent and people coming into the labor force than 4.5 percent with people staying on the sidelines. And so I think that's the best way to think about it.”

Since January 2022, Nevada’s labor force has increased from 1.5 million to 1.6 million, a change of about 101,000 people. The number of employed people has grown during the same period by 95,000, while the number of unemployed people has risen by 6,000.

“Most of the unemployed people that we have in the state, the majority are not job losers. They are either someone who left a job, or they're coming into the labor market,” Schmidt said. “It has a more voluntary component to it. And so what we're seeing is people, to a large degree, coming into the labor market and looking for work and then finding work.”

Schmidt said that dynamic has led to more short-term unemployment, and he pointed to data showing that Nevada has the nation’s highest unemployment rate for people unemployed for 14 weeks or less, but sits roughly fifth for the rate of people unemployed for 15 weeks or longer.

Still, even Nevada’s position as the state with the highest unemployment rate can appear deceptive. Historically, a 5 percent unemployment rate would be considered “full employment,” Las Vegas-based economist John Restrepo said in an interview.

In the wake of the pandemic, which saw job losses concentrated in the state’s largest industry (leisure and hospitality), Nevada has experienced job growth diversification.

Manufacturing, transportation, professional and business services and other higher-paying industries now have more jobs than pre-pandemic. Jobs in the accommodation sector, which includes hotel workers and are typically lower paying, still sit below pre-pandemic levels.

In February 2020, leisure and hospitality industry jobs made up 24.8 percent of Nevada employment. In October 2023, that number was 23.1 percent.

With the state economy broadly continuing to add more jobs, Schmidt predicted that “eventually we should see the unemployment rate coming down.”

Are wages keeping up with inflation?

As national employment numbers remain steady — the U.S. unemployment rate has been historically low this year — economic concerns have instead focused on prices, with the inflation rate running high and taking months to cool off.

In Nevada, the signs are hard to miss. The state’s gas prices, plastered across large signs on street corners, are fourth highest in the country as of Friday at an average price of $4.07 for a regular gallon, according to AAA. Costs for groceries and energy bills have surged over the past two years — exacerbated by sluggish wage growth that has not kept pace with inflation.

Even wage gains experienced nationally have been slower in Nevada. Schmidt said Nevada is in the bottom 10 in the country for average wages at $29.34 per hour, and is 49th for annual wage growth.

He said one contributing factor is the state’s higher unemployment rate, which contributes to a “looser labor market,” and with it, “less wage pressure.”

Another factor is the concentration of low-wage jobs in the leisure and hospitality industry.

State leaders have long hoped to diversify the economy, aiming to reduce Nevada’s reliance on tourism through expanding employment in other industries and protect the state from economic shocks that hit harder in an industry dependent on spending from out-of-state tourists. But even as the state adds more jobs outside of the hospitality industry, the transition is slow.

Restrepo said the Southern Nevada economy, which is responsible for about three-quarters of jobs in the state, remains “largely driven by discretionary spending.” That means any economic uncertainty nationally or internationally can have an oversized negative impact on the Las Vegas economy.

How is this affecting the state budget?

While workers have contended with higher prices, the ongoing streak of high inflation and elevated consumer spending has, in some ways, benefitted the state. At the Economic Forum’s December 2022 meeting, members approved projections for state tax revenue collections that resulted in the state’s largest two-year budget in history.

The major budget increase, along with a budget surplus in the prior two years, stemmed from soaring collections from sales and gaming taxes, which have boomed because of high inflation and strong consumer spending.

The trend of revenues exceeding expectations has continued, albeit to a smaller degree. Data show that tax collections through the end of June exceeded projections by $43.8 million, giving the state an unbudgeted surplus.

The increase was driven primarily by greater-than-expected collections of the state payroll tax and interest income earned by the treasurer’s office. Those revenues helped offset underperforming sales tax collections. While forecasters projected $1.75 billion in sales tax revenue during the most recent fiscal year, the amount collected was $1.72 billion — a 1.5 percent dropoff.

“Right now we are keeping an eye on the sales tax,” legislative fiscal analyst Michael Nakamoto said at Tuesday’s meeting. “We're trying to figure out whether it was something specific that happened, or the expectations for the forecasts were just too high.”

The state saw a record $8.2 billion in taxable sales last December, according to the Nevada Department of Taxation, and, since May, the state has recorded five consecutive months of more than $7.3 billion in taxable sales — a mark reached just five other times prior to this year.

Why are consumers still pessimistic?

Overshadowing rosy tax collections and a bustling labor market are concerns about a potential downturn. Though economists have generally upgraded their economic forecasts from the same time last year and are projecting lower odds of a recession occurring, the economy remains a chief concern for Silver State voters.

An October poll of 611 Nevada voters from The New York Times and Siena College found that 63 percent said economic issues were more important to their vote than social issues, such as abortion or guns. Just 18 percent of poll respondents rated the nation’s economy as “excellent” or “good,” compared with 59 percent who rated it as “poor.”

Nevadans and the country at large share similar concerns. The University of Michigan’s index of consumer sentiment sank to a six-month low in November, though it rebounded in December. In its latest quarterly Southern Nevada Business Confidence Index, UNLV’s Center for Business and Economic Research found a significant drop in local businesses’ confidence in the economy — from an index rating of 116 in the third quarter to 88 in the fourth quarter, suggesting “that respondents, on average, feel overall more negative than positive” about certain components of the economy, including profits and hiring.

“The macro indicators are all pointing in the right direction, whether it's lowering of inflation, low gas prices, wages finally growing a bit,” Restrepo said. “But people aren't feeling comfortable yet.”

Restrepo said the pandemic dampened workers’ views on the economy, also noting that people are still seeing sticker shock prices for certain items, such as groceries, and that other essential services such as child care remain expensive.

Despite those concerns, the Nevada economy keeps humming along. Economic Forum Chair Linda Rosenthal described the current economic picture as a “nice setup” for the state’s future economic growth.

“Unemployment … high compared to other states, but not high overall. Great growth. Broader diversification among the sectors that are driving employment growth. Much less dependent on historical growth drivers that were subjected more to probably economic downturns,” she said.

— This story is used with permission of The Nevada Independent. Go here for this and other Nevada Independent stories.