Keep your powder dry.
That’s the midyear ominous message or warning to Southern Nevada businesses from UNLV Economist Stephen Miller over concerns that show the school’s Center for Business and Economic Research Leading Index for Nevada has fallen 0.9 percent month over month and is down for the year.
That’s important because the monthly leading index provides an indication of the future direction of the economy looking ahead six to 18 months. When the index stagnates or decreases over a period of time, it can indicate a pending economic downturn, as it did for recessions prior to the COVID-19 pandemic, according to Miller.
Miller isn’t predicting whether there will be a recession but just that the probability of one occurring has gone up in the last six months. Any national recession or economic slowdown impacts travel to Las Vegas and trickles down to the business community that’s already dealing with tariffs imposed by the Trump Administration that increase the cost of housing and goods shipped into the region.
“The best advice to businesses is to keep some powder dry,” Miller said. “Be cautious. And that’s exactly what will slow the economy down. It’s a Catch 22.”
In Southern Nevada, the most recently available four monthly components declined, Miller said. Initial claims for unemployment insurance (-5.7 percent); Harry Reid International Airport airline passengers (-4.8 percent); housing permits (-7 percent); and the S&P 500 (-4.9 percent). Year-over-year, housing permits fell 25 percent and Harry Reid passengers declined 8.6 percent, while initial claims and the S&P 500 rose 0.3 percent and 5.1 percent, respectively.
CBER’s Coincident Index for Nevada, which tracks current economic conditions by providing a benchmark series that defines the business cycle, fell 1.1 percent month-over-month and 0.7 percent year over year.
The Southern Nevada Coincident Index, which tracks current economic conditions by providing a benchmark series that defines the business cycle, decreased 1 percent month-over-month and 1.6 percent year over year. Monthly declines were recorded across taxable sales (-1 percent), gross gaming revenue (-12.2 percent), and nonfarm employment (-0.3 percent). Over the year, taxable sales fell 5.7 percent, gross gaming revenue declined 10.6 percent and nonfarm employment dropped 0.2 percent.
To provide a more complete view of the region’s economy, CBER also produces specialized indexes focused on Southern Nevada’s most dynamic sectors, tourism and construction, which help capture the direct economic activity tied to visitor volume and development, Miller said. CBER’s most recent Tourism Index for Southern Nevada declined 2.1 percent month over month and 2.2 percent year over year. The Southern Nevada Construction Index decreased 0.7 percent month over month and 0.3 percent year over year.
“The latest release of the monthly indexes does not give CBER cause for concern that a recession is around the corner, but it does seem to indicate slower growth in the coming six to 18 months,” Miller said.
CBER reported it should be noted that because there is a lag of when the data is released, the latest index does not incorporate the impacts of subsequent announcements on tariffs.
The Leading Index peaked in March 2022 and has been on a downward path since, Miller said. That was the month the Federal Reserve started increasing interest rates to address inflation.
“They started putting pressure on the economy, and what’s interesting about rising interest rates is it didn’t seem to have much of an effect on the labor market,” Miller said. “It kept buzzing along. The Fed probably did engineer a soft landing, but the six months of the Trump Administration and his fascination with tariffs and willingness to face and jump new directions at the drop of a hat has increased the amount of uncertainty in the economy to enormous levels. Businesses don’t like to have uncertainty. They like stability. They are planning on investment decisions but given the level of uncertainty, our finance theory tells us the value of not committing but keeping options open increases when you have uncertainty. That’s what’s been going on.”
Miller said that’s the reason why the Federal Reserve is waiting to move on lowering interest rates to have a better understanding of what’s happening. The problem is that it may be impossible at this time.
Miller said forecasting the economy is difficult under any circumstances but when there’s sudden policy shifts on a regular basis that makes it more challenging.
“I have mixed emotions about the economy,” Miller said. “The labor market is still cruising along even though it’s slowing down. The problem is the level of economic policy uncertainty. Every day you get up there’s a new tariff rate imposed.”
Miller and CBER weighed in on the impact of the federal spending bill signed by President Trump on July 4 that enacts sweeping policy changes over the next 10 years with significant economic implications for the nation and Nevada.
The 900-page omnibus package encompasses many provisions, including extensions or making permanent tax cuts passed in his prior term, additional tax cuts, increased spending on defense and border security, all of which amounts to a $4.5 trillion rise in federal government costs. To offset some of those costs, the bill reduces future government spending by $1.2 trillion mainly through the reduction in programs for social safety nets such as Medicaid, student loans and eliminating green energy initiatives. In total, the Congressional Budget Office estimates the bill will increase the national debt by $3.3 trillion after factoring in the savings.
“These federal changes will have outsized effects on Nevadans who receive public subsidies for health care and food assistance,” Miller said. “The nearly $1 trillion in cuts to Medicaid is one of the more prominent features of the massive bill, with Medicaid being the largest source of federal funding to most state budgets. It is estimated the bill will reduce $8.8 billion in state Medicaid funding to Nevadans for medical expenses over the next decade.”
As of April, 787,000 Nevadans, or 24 percent of the state’s population, rely on Medicaid, which covers 44 percent of births in the state. Large portions of the populations on Medicaid also work for some of the state’s largest employers such as Amazon, MGM, Walmart and Clark County School District, Miller said.
“The health care industry also will feel the strain, with a projected loss of $232 million to hospitals statewide over the next 10 years, leaving rural hospitals and health care facilities at a heightened risk,” Miller said. “Similarly, the $186 billion in cuts to (food stamps) will impact the 497,000 Nevadans, or 15.2 percent of the population, who depend on food assistance, though the cuts relate more eligibility than to the fund formula itself.”
There are benefits for individuals with children, including increases in the deduction for qualifying childcare expenses, increasing the child tax credits for families, and so-called “Trump accounts,” which can be used to save for future expenses in education, homeownership or entrepreneurship, Miller said.
There’s good news for businesses in that the bill does give some certainty to those looking to grow over the next five to 10 years in what kind of tax code they will face and costs or savings related to their activities, Miller said.
“This could benefit the economy for larger projects or business investments with longer investment horizons, though studies done during Trump’s first term found the overall benefit of tax cuts to be small compared to the initial projections,” Miller said.
