by April Corbin Girnus, Nevada Current

The prospect of a massive shift in U.S. economic policy under a second Trump administration could lead to a tricky budgeting cycle for Nevada.

The Economic Forum, the five-member appointed board tasked with setting the official revenue forecast used by the governor and Legislature to set the state budget each biennium, must pass that forecast by Dec. 3. That is roughly a month and a half before President-Elect Donald Trump will be sworn in.

“This (outlook) is definitely coming at an interesting time,” Emily Mandel, an economist at Moody’s Analytics, told the forum members at its meeting Thursday.

As of that meeting, Trump had been declared the decisive victor of the presidential election and Republicans had secured enough seats to control the U.S. Senate. Control of the U.S. House was still unclear, but incomplete results suggest the GOP will maintain control.

A Republican trifecta in Washington D.C. would clear the way for “more significant changes than anticipated in previous baseline” revenue projections, said Mandel. Moody’s baseline was a Kamala Harris presidency with a divided government, similar to the current Biden administration.

Compared to that baseline, Moody’s expects real GDP to do worse under Trump. Potential positives — primarily the proposed lowering of the corporate tax rate — would be offset by impacts from proposed tariffs, which would drive up inflation as the costs are passed onto consumers, and immigration measures, which would reduce the labor force.

“The labor force is one major factor in a full employment economy that allows you to keep adding jobs,” Mandel said.

Trump campaigned on promises of mass deportation of immigrants and sky-high across-the-board tariffs.

The Peterson Institute for International Economics has estimated that mass deportation could reduce U.S. economic productivity and job growth by as much as 7.4% and 6.7%, respectively, below baseline projections of what would happen without mass deportation.

Gov. Joe Lombardo’s office did not immediately respond to a request for comment about the increased volatility of the state’s budget forecast as a result of the election. But a statement from the governor posted to social media Wednesday said he believes Trump will “bring down the rising costs of housing, groceries, and gas” and “oversee a new era of American prosperity.”

Mandel emphasized that political changes always lead to uncertainty for economists.

“We’ll try to make some adjustments, try to account for these as best we can” she said, “but it will still be an estimate until that final signature is signed on any legislation.”

The Federal Reserve on Thursday lowered the federal interest rate by a quarter of a percentage point. The move had been widely expected by economists since before Election Day. It is a sign the Fed believes inflation is under control and they can continue with a “soft landing” back to a target 2% federal interest rate.

Mandel speculated that the uncertainty of what the new Trump administration and GOP-controlled Congress will do may cause the Fed to slow down the pace of interest rate reductions. Moody’s current baseline assumes additional quarterly easing of federal interest rates next year.

“They don’t want to be cutting and then immediately start increasing interest rates again,” she said. “It seems like their only play would potentially be to move more slowly as they wait to see how these (policies) filter out, to avoid some of this whiplash effect.”

The Economic Forum will meet again on Dec. 2 to approve the state revenue forecast. It will meet again in May 2025, weeks before the end of the legislative session. At that point, the forum could approve additional changes to the forecast based on the actions of the president and Congress.

Forecasters typically err on the side of caution, knowing that revenue coming in under projections is riskier for the state than revenue coming in over projections. During the 2023 session, the forum adjusted general fund revenue projections up $250 million because the state’s economy was rebounding from the pandemic more quickly than anticipated.

Consumer spending

Mandel highlighted national data showing that in 2022 and 2023 the lowest 80% of households by income saw their personal savings rate go below zero, meaning they were spending more money than they were making.

“That has begun to improve” as wage growth began keeping pace with price increases, she added. “We’re starting to see it level off. Still lower than pre-pandemic but at least getting on the positive side.”

Meanwhile, the top 20% of households by income have had a personal savings rate around pre-pandemic levels and, Mandel said, “are doing quite well in this economy.”

She continued, “It makes sense. If you’re a homeowner, if you’ve got wealth in the stock market, you’re probably doing pretty well. You haven’t been impacted as highly. A lot of the price pressure that we’ve seen have been things that are very important for everyday life. Things like groceries. Things like housing.”

Moody’s expects prices to stabilize but not deflate — “which is “a good thing,” Mandel added. While consumers like the prospect of cheaper prices, deflation can result in declining revenues for businesses and less production of goods, which can trigger job losses and wage cuts, all of which are bad for the economy.

If wage growth continues to outpace prices, consumers may normalize to them or find more cushion in their wallets.

Consumer spending is by far the largest  driver of the nation’s economy, and of even more importance to Nevada, where the largest industry is dependent on the discretionary consumer expenditures of tourists.

Other forecasters who made presentations to the economic forum also highlighted where they see the impact of high prices. Christian Thauer, a deputy fiscal analyst with the Legislative Counsel Bureau, noted that the underperformance of sales tax this fiscal year may be a result of Nevadans spending more money on rent, insurance and groceries (which are exempt from sales tax).