Latest / The Federal Reserve Podcast with Fexingo: Interest Rates, FOMC Meetings, and Monetary Policy / What the Fed Sees in Nevada Job Growth
Transcript
- Lucas: You may have seen the headlines — 'Struggling to find a job? Try looking in Nevada.' That's not just a catchy line. Nevada's unemployment rate is at 3.7 percent, well below the national average of 4.2 percent. And what's interesting is how the Fed is reading this. Luna: Right, because it's not just about one state. Nevada is often a leading indicator for consumer spending and housing, given its reliance on tourism and construction. Lucas: Exactly. And the latest data shows construction employment in Nevada is up 8 percent year-over-year. That's massive. A lot of that is driven by the boom in data centers and logistics hubs around Reno and Las Vegas. But here's the thing — that kind of wage growth can spill over into other sectors. Luna: And the Fed is watching wage inflation closely. We've talked about sticky wage inflation in prior episodes. Nevada is a real-time test of that. Lucas: It is. And it comes at a time when the new Fed chairman, Kevin Warsh, just presided over his first FOMC meeting last week. The dot plot from that meeting still points to two rate cuts this year, but the data out of Nevada might give some hawks pause. Luna: So what's the specific concern? Is it that construction wages push up housing costs, or that casino hiring pulls up wages in leisure and hospitality? Lucas: Both. Let's start with construction. Nevada is building like crazy — not just homes, but warehouses and data centers. That's driving up wages for electricians, plumbers, and general laborers. And those higher wages get passed into the cost of new homes and rents. The latest CPI data from May showed shelter costs still rising at 5 percent annualized. Luna: And on the leisure side, Las Vegas is back to pre-pandemic visitor numbers. Casinos are hiring, and they're offering signing bonuses. That pushes up wages for the entire service sector. Lucas: Right. And if you look at the national picture, the ten-year breakeven inflation rate is at 2.23 percent — that's right around the Fed's target. But breakevens are a market-based measure, and they can be influenced by oil prices, global risk, all that. Nevada is a real-economy signal. Luna: So what would Warsh and the FOMC need to see from Nevada to change their rate-cut outlook? Are we talking about wage data, or job creation numbers? Lucas: I think it's wage data specifically. The Fed has been watching average hourly earnings nationally, and they've been hovering around 4 percent year-over-year. But in Nevada, we're seeing wage growth closer to 5.5 percent in construction and 6 percent in leisure and hospitality. If that becomes a national trend, the Fed might worry that services inflation stays sticky. Luna: But isn't some of that just a catch-up effect? Nevada's wages were depressed during the pandemic, and tourism came back hard. Lucas: That's a fair counterargument. And it's one the Fed is probably considering. The question is whether the pace of wage growth is sustainable. If it's just a post-pandemic normalization, then it should moderate on its own. But if it's driven by structural labor shortages — like not enough workers moving into the state — then it could persist. Luna: And that's where the Fed's favorite metric comes in: the quits rate. If people are quitting their jobs in Nevada to take higher-paying ones, that's a sign of a tight labor market. Lucas: Exactly. The quits rate in Nevada is above the national average. That tells you workers have options. And when workers have options, employers have to raise wages to keep them. That's wage-push inflation in its purest form. Luna: So if you're Kevin Warsh, do you look at Nevada and think 'this is a reason to hold off on rate cuts'? Or do you see it as a regional anomaly that will fade? Lucas: I think he sees it as a data point to watch. Warsh has been pretty clear that he wants to see more evidence that inflation is sustainably heading to 2 percent. In his first press conference, he said the committee needs 'several more months of good data.' Nevada's wage growth is not bad data per se, but it's not the kind of data that accelerates rate cuts. Luna: And let's not forget the national picture. The fed funds rate is at 3.63 percent. That's still restrictive by most estimates. But if the economy is adding jobs in places like Nevada, maybe it's not restrictive enough. Lucas: That's the debate. The Fed's own staff projections show the economy growing above trend in the second half of the year. And when you see construction booming in Nevada, that fits with a stronger growth narrative. So the question becomes: do you need to keep rates higher to cool that down? Luna: And what about the consumer side? If Nevadans are earning more, they're spending more. That shows up in the PCE data. The latest core PCE price index is at 129.6, up from 129.32 last month. That's a 0.2 percent month-over-month increase — nothing alarming, but it's not declining either. Lucas: Right. And the Fed wants to see core PCE running at 0.15 percent month-over-month consistently to feel confident. So Nevada's wage growth could be one of those factors that keeps consumer spending strong and prevents inflation from falling faster. Luna: So what's the bottom line for the listener who's trying to figure out when rates might come down? Should they watch Nevada job reports? Lucas: Honestly, yes. If you see Nevada's unemployment rate drop below 3.5 percent, and wage growth accelerates further, that would be a strong signal that the Fed stays on hold. But if Nevada's labor market cools — say construction hiring slows — that could be an early sign that the national economy is softening, and the Fed might cut sooner. Luna: So it's a bellwether. And that's actually really useful for anyone trying to read the tea leaves on monetary policy. I know I'll be paying more attention to Reno and Las Vegas. Lucas: Same here. And speaking of useful — if walking through the economy with us has made something click, the way these episodes stay ad-free is through listener support. You can buy us a coffee at buy me a coffee dot com slash fexingo. It's a small gesture that keeps us independent. Luna: Yeah, we really appreciate that. It helps us keep digging into these specific angles without any outside pressure. Lucas: Exactly. So back to Nevada — we'll be watching the June jobs report due out in early July. If the trend continues, it will be a key data point for the July FOMC meeting. Luna: And we'll be here to break it down. Thanks for listening.