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The FRED® Blog

A history of scary volatility since 1864

Tricks and treats for Nevada's undiversified economy

Today is October 31. Obviously that means the FRED Blog, like every other news and social media outlet, is celebrating Nevada’s admission to the Union on October 31, 1864. What’s so spooky about Nevada’s economy compared with, say, the economy of its neighbor California? Nevada’s economy is much smaller and much less diversified: Mining, entertainment, gambling, and hospitality services are outsized sectors compared with elsewhere. And, as with any portfolio, a lack of diversification brings big risks that typically manifest in volatility. Some find that scary.

Our first FRED graph, shown above, compares real GDP growth in Nevada and California. It’s easy to see it fluctuates much more in Nevada. In this state, one major sector affected by an adverse shock can send shivers through the whole state. This isn’t the case for a larger, diversified state such as California.

The story is similar for the growth of median household income—that is, the income for a household in the middle of the income distribution of all households. There’s more variability, up and down, in Nevada.

Our last graph shows per capita income. Note that the wild fluctuations even way back to the Great Depression were stronger in Nevada. Lesson: Although Nevadans may enjoy higher levels of risk and a good scare now and then, if you don’t have the stomach for economic volatility, then diversify!

How these graphs were created: Search FRED for each Nevada series, click on “Edit Graph,” and use the “Add Line” tab to search for the same California series. Apply units “Percentage change from year ago” to all lines.

Suggested by Christian Zimmermann.

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