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Will Nevada ever recover from the housing bust?

Summary:
At this rate, probably not.Start with the state-level GDP figures, which show the real output of Nevada’s private sector is still more than 8 per cent below its previous peak:As hard as it is to believe, this understates the scale of the damage.Despite an undiversified economy stuck in the middle of the desert, Nevada continues to be one of the most popular places for Americans to move. It also has a relatively high birth rate.Adjusting for changes in population, Nevada’s real output is a staggering 21 per cent below its 2006 peak, and more than 10 per cent below its level from two decades ago — a performance only comparable to Greece:No wonder recent data from the Federal Reserve bank of New York shows that, unlike the rest of America, Nevadans are still cutting their debts ten years

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At this rate, probably not.

Start with the state-level GDP figures, which show the real output of Nevada’s private sector is still more than 8 per cent below its previous peak:

Will Nevada ever recover from the housing bust?

As hard as it is to believe, this understates the scale of the damage.

Despite an undiversified economy stuck in the middle of the desert, Nevada continues to be one of the most popular places for Americans to move. It also has a relatively high birth rate.

Adjusting for changes in population, Nevada’s real output is a staggering 21 per cent below its 2006 peak, and more than 10 per cent below its level from two decades ago — a performance only comparable to Greece:

Will Nevada ever recover from the housing bust?

No wonder recent data from the Federal Reserve bank of New York shows that, unlike the rest of America, Nevadans are still cutting their debts ten years after the crisis:

Will Nevada ever recover from the housing bust?

That’s even more remarkable considering the 70 per cent rebound in Las Vegas house prices since the trough in 2012. In the other states with the biggest booms and busts in housing — Arizona, California, and Florida — average household debt levels bottomed in mid-2013 and have since grown by as much as 10 per cent.

Finally, consider Nevada’s employment. On the surface, things don’t look too bad. The unemployment rate has collapsed from 14 per cent to 5 per cent, while private employment has (finally) passed the pre-crisis peak.

However, the numbers look much less impressive when accounting for changes in Nevada’s population. The share of Nevadans with a job plummeted from about 65 per cent in 2004-2008 to 56 per cent by 2010. Even now, fewer than 59 per cent of Nevadans work, which means the last legacy of the crisis is greater than six percentage points:

Will Nevada ever recover from the housing bust?

(Apologies for the lack of a proper x-axis, the formatting of the BLS table precluded it. The chart starts in 1976 and ends in December, 2016. Ideally, we would have only looked at the employment rate of Nevadans in their prime working years but as far as we can tell those figures don’t exist.)

For comparison, the share of all Americans in work is about three percentage points lower now than it was before the crisis, even though the recovery since the trough is about the same as in Nevada. And remember, Nevada is younger than the rest of the country, which suggests excuses about aging and demographics can’t explain its exceptionally poor performance.

The euro area has rightly been criticised for depriving member states of monetary sovereignty, and the euro area’s policymakers have rightly been criticised for their unwillingness to write down bad debts or reflate their economies.

These criticisms are often framed by contrasting Europe’s experience with that of the United States. But at least in the case of Nevada, it’s not clear how much it helped to be part of a functional monetary and fiscal union.

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Matthew C Klein
I write about the economy and financial markets for Bloomberg View. Before that I wrote for The Economist. I have worked at the world’s largest hedge fund and read every FOMC transcript since May, 1987