Recession may become self-fulfilling prophecy if worried consumers lower spending
While Nevada economist Stephen Miller is not predicting a recession in 2023, he said that doesn’t mean there is no risk of one.
Miller, research director at the University of Nevada Las Vegas’ Center for Business and Economic Research, presented a fall economic outlook report in November, according to an article in The Nevada Independent.
The newspaper also cited Emily Mandel, an economist at Moody’s Analytics, who spoke about the state’s economy at a recent forum.
Both economists are forecasting a slowdown in economic growth in early 2023. Mandel said it may feel like a recession, without technically being defined as one.
Miller estimated the chances of a recession at 30 percent in the short term but said it could become a self-fulfilling prophecy if consumers lower spending over worries of an economic downturn.
A change in Nevada’s government also may impact the state’s economy, according to an article in Nevada Business. A Republican governor is in office, but the state legislature is controlled by Democrats. Cindy Creighton, president of the Nevada Taxpayer’s Association, said a divided government is good for all taxpayers.
“Anytime you have something like that, people are going to collaborate more, work together for the betterment of the citizens and the constituents,” Creighton told the magazine.
The Federal Reserve has raised interest rates several times in an attempt to slow the economy and, in turn, inflation. However, Miller told Nevada Business that while this can be good for the economy, it is hard on businesses.
He said he expects rate hikes to pause in late 2023, with the economy’s reaction setting the stage for the next move. If inflation decreases, interest rates also should start to fall, Miller said.
It is unclear how possible changes to taxes in the ongoing state legislative session may affect the economy and Nevada businesses.
Creighton noted the drop in the state’s fuel tax, in response to electric and more fuel-efficient vehicles, is good for the environment. However, those tax funds are needed for road maintenance, state and local governments and Nevada’s transportation department.
The state also will be looking at programs created from federal funding during the COVID-19 pandemic. As that money is gone, Creighton questioned their fate.
Looking at real estate, Miller said it is in recession, with housing prices falling dramatically. He said the forecast is for double-digit price declines over the next few years. This is conditional on the Fed continuing to raise interest rates and mortgage rates increasing.
Tom Blanchard, president of Nevada Realtors, told Nevada Business that the market is in a period of transition from being overstimulated. It is now returning to a more normal state.
Looking at 2023, John Restrepo, principal at RCG Economics, told Nevada Business that there is a consensus among economists that an economic downturn or adjustment is coming.
Miller said business owners should keep an eye on the unemployment rate. It if rises, a recession could be just around the corner.
He added that those businesses that have the room may want to stock up on inventory while they can at lower interest rates. The downside to that action is it may drive up demand, thus making it harder for inflationary rates to decline.
Brian Bonnenfant, project manager at the Center for Regional Studies at the University of Nevada, Reno, suggested planning for the worst-case scenario. Business plans should be revised, and capital improvement projects probably should be postponed.
The Nevada Business article noted the state still has ARPA funds available. Nevada has a $150 million small business grant to distribute and, in October, a $1.8 million StartUpNV grant was announced.
Bonnefant also suggested business owners look at the allocation of monies in the final state budget. That will indicate industries that are expected to perform well.
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