The United States, and Nevada, have navigated economic policy challenges over the past two years with what was described as “relatively gracefully” adapting to unprecedented restrictions on trade and immigration. However, economists are now cautioning that the next two years are likely to present a more challenging and flatter path for revenue generation. This warning was delivered to the Nevada Economic Forum last week.
Kumael Bilgrami, an associate economist at Moody’s Analytics, informed the forum that strong consumer spending and the buildout of artificial intelligence (AI) have served as significant economic boosts. These positive factors, however, are anticipated to weaken soon. Bilgrami explained that while growth is expected to remain on stable ground going forward, its progress will be comparatively flat as these supports begin to diminish.
A primary reason for this anticipated flattening is the conflict in the Middle East and the resulting surge in energy prices. This situation is projected to put financial pressure on consumers. Wage growth is no longer keeping pace with inflation, affecting both Nevadans and the non-Nevadans who visit as tourists, vital for the state's economy. Bilgrami also observed that personal savings rates have declined significantly this year.
Moody’s Analytics and state-based economists are currently forecasting an increase in sales tax revenue collection for the upcoming fiscal years. Yet, they acknowledged this growth will be driven almost entirely by the higher cost of goods, rather than an increase in the quantity of items purchased. Bilgrami emphasized that the segmented economic performance, where higher-income households maintain stability while lower-income households struggle, is becoming more pronounced. This observation aligns with earlier presentations the Economic Forum has received this year. Notably, tourists visiting Las Vegas over the past three years have increasingly represented much higher household incomes.
The outlook for domestic visitation remains negative, according to Moody's, with Bilgrami noting that the recent decline has been sharper than those experienced after the 2008 financial crisis and the events of 9/11. While international tourism shows initial indications of moving in a positive direction for Nevada, Bilgrami cautioned that it is too soon to determine if this trend will stabilize. Moody's baseline forecast for economic improvement assumes that the Middle East conflict starts to de-escalate in the coming months. This scenario projects improvements toward the latter half of next year, though Bilgrami added that the recovery would unfold gradually.
Bilgrami also tempered expectations regarding massive investments in AI as a long-term solution to economic challenges. He stated that the economic benefits resulting from the boost to the stock market would be constrained due to current elevated market valuations. While Nevada participates in the data center boom, Bilgrami warned of numerous associated risks. These include the creation of short-term construction jobs but very few permanent positions. There is also a risk of job displacement. Nevada is assessed as having minimal direct exposure to job loss due to AI, according to Bilgrami. However, if AI were to trigger widespread layoffs elsewhere and initiate a recession, Nevada's tourism-based economy would experience significant impact.
The Nevada Economic Forum is a five-member appointed panel tasked with approving the state's biennial revenue forecast. This forecast serves as the foundation for the governor's recommended budget, which is then presented to the Nevada State Legislature. The Legislature is constitutionally required to pass the budget, subject to a gubernatorial veto, by the conclusion of its 120-day session. The forum is scheduled to convene again on November 16 to officially approve the forthcoming revenue forecast. The 2027 Legislative Session is slated to commence in February.