Cloud of uncertainty affects business optimism

Good but not great.

That's how local businesses see their prospects in the third quarter, according to a new business optimism study released Wednesday by the Center for Business and Economic Research at the University of Nevada, Las Vegas.

The center's Southern Nevada Business Confidence Index eased off of a record 118.2 in the second quarter, falling to 105.26 in the third quarter. The decline shows that uncertainty is clouding optimism among local businesses, as the end of 2012 includes the possibility of a "fiscal cliff" - higher federal taxes paired with federal spending cuts.

Gauging business confidence is important because it indicates whether businesses feel optimistic enough to invest in expansion, hiring, inventory and new office space. Pessimistic business owners typically hold off on such investments.

A reading higher than 100 means businesses feel optimistic. So local companies think they'll see stronger economic conditions in the third quarter than they experienced in the second quarter, said center Director Steve Brown.

Still, optimism fell.

"Businesses are seeing a lot of sideways movement in their part of the economy," Brown said. "I also think people are worried about the future, with uncertainty created by the so-called 'fiscal cliff,' and then we look at different directions in policy depending on who's elected president and who controls Congress and the Senate. There are a lot of reasons for businesses to sit on their hands."

Expectations for sales, profits, hiring, capital expenditures and economic conditions make up the index, and all index components dropped. Outlooks for sales, profits and hiring fell the most.

The center has tracked business confidence since 2008. Confidence reached a low of 42 in the first quarter of 2009 and surged past 100 for the first time in the first quarter of 2011 before retreating to less than 100 in the third quarter of the year. Confidence has been above 100 in the first three quarters of 2012, which Brown called "good on balance."

Local confidence varies by industry. Strong sales are helping sentiments in the retail sector, for example, but a lack of housing inventory could be curbing optimism about gains in real estate sales. And gaming flashed weakness in June, as industry numbers showed a drop in slot play.

Brown said the weakness of the economy has surprised him. The nation's recession officially ended in June 2009, yet the national gross domestic product continues to lag as companies hold off on investing and consumers keep a lid on spending. Those trends affect Nevada, which needs a healthy U.S. economy to draw tourism dollars.

"There's a tendency for economies to get back on track, and we don't usually think of it as taking a really long time," Brown said. "We're not really closing the gap, even slowly, with potential GDP."

Big changes in economic strength or optimism aren't likely before 2013, but Brown said fall's election will "lift some uncertainty, no matter who wins."

Contact reporter Jennifer Robison at jrobison@review journal.com or 702-380-4512. Follow @J_Robison1 on Twitter.