Latest / The Federal Reserve Podcast with Fexingo: Interest Rates, FOMC Meetings, and Monetary Policy / How the Fed Interprets Nevada Job Growth
Transcript
- Lucas: Alright, let's talk Nevada. The CNBC headline last Friday was 'Struggling to find a job? Try looking in Nevada,' and it's not just a quirky regional story. The Federal Reserve is actually watching this closely. Luna: Nevada? That feels like an odd one. Why not Texas or Florida, which have been growing like crazy? Lucas: Great question. Nevada is unique because its economy is so heavily tilted toward tourism and hospitality — Las Vegas, Reno, the convention business. When the pandemic hit, Nevada's unemployment peaked at nearly 30 percent. It was the highest in the country. Luna: Right, I remember that. But we're years past the pandemic now. What's the current picture? Lucas: So fast forward to today, the state has recovered a lot of those jobs, but it's still not back to its pre-pandemic trend line. And what the Fed is looking at is whether that recovery is accelerating or stalling. Because Nevada's job growth is a proxy for consumer discretionary spending — when people are traveling and going to shows and casinos, that shows up in Nevada payrolls. Luna: And consumer spending is a huge driver of inflation. So if Nevada is adding jobs fast, that could signal that demand is still hot. Lucas: Exactly. And the latest data — well, actually the most recent state-level jobs report is from May, but we've seen that Nevada has been adding about 4,000 to 5,000 jobs per month. That's decent, but not explosive. And the broader context is that the national job market is still tight, but cooling. Luna: The Fed funds rate is at 3.63 percent, and the last CPI print showed core inflation still above 3 percent. So the Fed is looking for any signs that the economy is slowing enough to bring inflation down. Lucas: Right. And Nevada is a canary in the coal mine. If the tourism sector starts to soften — maybe because consumers are finally pulling back after two years of high prices — you'll see it in Nevada first. That would be a signal to the Fed that their policy is working. Luna: But what if Nevada keeps adding jobs? Then the Fed might feel like they need to keep rates higher for longer. Lucas: That's the tension. And it's not just the headline number. The Fed also looks at wage growth in Nevada. The leisure and hospitality sector has seen some of the fastest wage increases in the country, because employers had to compete for workers. That feeds into services inflation. Luna: So Nevada is like a microcosm of the national economy — but with a magnifying glass on the consumer side. Lucas: Exactly. And this ties into something else the Fed is watching: the yield curve. The 10-year yield is at 4.51 percent, the 2-year is at 4.29, so the curve is still inverted, but it's been uninverting. That usually happens before a recession, but we haven't seen a recession yet. Luna: And if Nevada's job growth stays solid, that might suggest the economy can avoid a downturn. But it also means inflation might stay sticky. Lucas: Which brings us back to the Fed's dilemma. The Bank of England just held rates at 3.75 percent, and they're dealing with similar issues. It's a global story. Luna: So what's the bottom line for listeners? Should they be looking at Nevada job reports now? Lucas: I think it's worth paying attention to. The next state jobs report for Nevada is due out later this month. If we see a big miss or a big beat, it could move markets. Because the Fed is definitely watching. Luna: That's fascinating. I never thought of Nevada as a leading indicator. Lucas: Yeah, it's one of those unexpected data points that really matters. And speaking of things that matter, if walking through the economy with us has made something click for you, we want to mention something. Luna: Yeah, we keep this show ad-free, and that's only possible because of listeners who choose to support us. If today's episode was worth a coffee to you, that's all we ask. Lucas: The link is buy me a coffee dot com slash fexingo. No pressure, just if you feel like it. Luna: And now back to Nevada. So what other states is the Fed watching besides Nevada? Lucas: They also track states like Florida, Texas, and Arizona for population growth, but Nevada is unique in its reliance on discretionary spending. Another state to watch is Hawaii, for similar tourism reasons. Luna: But Hawaii's economy is much smaller. So Nevada is the bigger signal. Lucas: Right. And there's also a housing angle. Nevada had one of the biggest housing booms and busts in 2008. Today, home prices in Las Vegas are up again, and affordability is a concern. If the Fed's high rates start to hit housing demand, that could spill over into construction jobs and then into the broader economy. Luna: So Nevada is really a triple threat: consumer spending, housing, and construction. Lucas: Exactly. And that's why the Fed is paying attention. It's not just about the headline jobs number; it's about the composition. Luna: Alright, so what should we look for in the next Nevada report? Specific numbers? Lucas: I'd watch the leisure and hospitality sector specifically. If that starts to shed jobs, it's a red flag for consumer spending. Also watch average hourly earnings in that sector — if they're still rising above 5 percent year-over-year, the Fed will be concerned about wage-push inflation. Luna: And the national context: core CPI is at 336.1, up from 335.42. So inflation is still creeping up, not down. Lucas: Right. And the 10-year breakeven rate is at 2.25 percent, which is down slightly. That suggests the bond market thinks inflation will moderate. But the Fed needs to see it in the data. Luna: So Nevada could be the data point that tips the scales one way or the other. Lucas: Exactly. It's one of those stories that seems small but has big implications. And it shows how the Fed is thinking about the economy from the ground up.