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Talk of recession lingers as fiscal analysts prepare to set Nevada state budget

By Nevada Current
Published: Last Updated on

by April Corbin Girnus, Nevada Current

Fiscal analysts are cautiously optimistic about Nevada’s economic future, even amid nationwide chatter about the possibility of a recession.

Emily Mandel, an economist at Moody’s Analytics, said the U.S. economy is slowing after a stronger-than-expected recovery from the pandemic but is “clearly not in a recession yet” and that it is “far from certain” that one is impending.

Mandel made the comments Monday in a presentation to the Economic Forum, the five-member committee of private-sector financial experts appointed to set Nevada’s revenue forecast for each fiscal biennium.

“I’d like to reiterate that now that we’ve had so much talk about recession,” said Mandel. “A quarter ago we had two quarters of negative [gross domestic product] growth, which set those alarm bells ringing. But I think it’s pretty clear based off the strength that we’ve seen in the labor market and the strength we’ve seen in consumer spending that we still have a good amount of firepower, a good amount of strength in the labor market.”

Mandel says Moody’s Analytics’s forecast for the U.S. and Nevada assumes that the economy – and the Federal Reserve – will be able to walk a “fairly narrow path” and avoid entering a recession. The Federal Reserve this year has raised interest rates to try and combat inflation.

“That said, however, things are going to feel a bit like a recession even without technically entering that sustained and widespread contraction that we would use to describe a recession,” she added. “That’s really because we’re coming off of these two years of extremely strong growth. Things are going to be slower.”

Mandel said if the country does enter a recession, it would likely hit in the middle or latter half of 2023.

Helping matters, she elaborated, is a strong labor market where there are still more job openings than people looking for jobs, as well as the “mountain of money” most households have on hand to help cushion the impact of inflation on necessities like gas and food. According to Federal Reserve data, 80% of households have significantly more cash immediately available to them today than they did in 2019 – likely from unspent government stimulus or other pandemic-era savings.

(For households in the lowest quintile, the pandemic relief is long gone and no such cushion exists.)
A slide from a Moody’s Analytics presentation to Nevada’s Economic Forum

Americans are feeling anxious about the economy, according to a survey released in September. Bank of Montreal, which conducts quarterly surveys as part of its BMO Real Financial Progress Index, found that 84% of Americans are concerned about a recession starting before the end of this year and a majority are adjusting their spending habits as a result.

One primary driver of many of those fears is inflation.

Mandel told the Forum Moody’s anticipates that inflation will end around 8% this calendar year, then go down to 4% in 2023, before returning to “a more sustainable footing” in the low 2% range in 2024.

“That path will keep inflation high over the coming year relative to what we’ve had prior to the pandemic,” she added, but inflation is “definitely coming down from the level we’ve seen recently.”

That path, Mandel acknowledged, is riddled with risks – the Federal Reserve could raise rates too quickly and businesses could react with layoffs; or geopolitical tensions could boil over.

“There is reason not to place a recession into your outlook,” Mandel told the Forum. “There’s still a lot of support in the economy, because things are moving in the right direction. But I do think there’s some cause to handicap those outlooks a little, to slant things to be a little on the lower side because of these risks.”

In addition to Mandel’s presentation, the Forum on Monday heard from financial analysts from several government agencies, including the Legislative Counsel Bureau, the governor’s finance office, and the Gaming Control Board. They presented their preliminary forecasts for Nevada’s major revenue sources.

The Economic Forum is scheduled to meet again on Dec. 5 to approve the state’s official revenue forecast for the upcoming fiscal biennium. That forecast will provide the base for the governor’s recommended budget, which will be given to the Nevada State Legislature prior to the start of the regular session. It is the Legislature that passes the budget, though the governor has veto power.

Democrats controlled the governorship and both houses of the Legislature the last time the state budgeting process played out. That won’t be the case this time around, as Republican Joe Lombardo unseated Gov. Steve Sisolak during last week’s election. The Legislature will still be controlled by Democrats, though not by the margins needed to overturn any veto.

Nevada Current is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. Nevada Current maintains editorial independence. Contact Editor Hugh Jackson for questions: [email protected]. Follow Nevada Current on Facebook and Twitter.

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