ETSU Bureau of Business and Economic Research

Tri-Cities Retail Sales Report

East Tennessee State University + First Quarter 2006 + College of Business and Technology

CHANGES IN RETAIL SALES DATA

This report incorporates several significant changes and revisions in the retail sales data. Please see the special note at the end of the report for a discussion and analysis of these changes.

THE TRI-CITIES

Retail performance continued to be mixed as the Tri-Cities moved into the new year. Bristol again saw the largest increase in sales levels, with retail revenues increasing 10.6% to $250 million. Kingsport, after a disappointing holiday season, reported a 4.8% gain in retail activity to $294 million. In contrast, retail growth tapered off in Johnson City as dollar sales were up only 2.6% to $388 million. Adjusted for inflation, sales volume during the January to March quarter increased 6.7% in Bristol and 1.2% in Kingsport, while falling 1.0% in Johnson City.

 BRISTOL TN-VA JOHNSON CITY KINGSPORT 
 Period  Sales  Y-Y%Ch  Sales  Y-Y%Ch  Sales  Y-Y%Ch 
 2000 947.6 -0.8 1317.1 3.8 1108.1 -2.2
 2001 929.9 -1.9 1412.4 7.2 1130.7 2.0
 2002 929.7 -0.0 1458.0 3.2 1138.9 0.7
 2003 933.7 0.4 1449.2 -0.6 1197.3 5.1
 2004 969.8 3.9 1519.4 4.8 1214.7 1.4
 2005 1007.0 3.8 1631.0 7.4 1245.6 2.6
 02:1 224.3 8.3 342.9 8.9 265.8 3.3
 02:2 218.9 -9.5 370.1 8.9 282.8 0.0
 02:3 237.9 8.4 347.7 -0.1 274.4 -1.5
 02:4 248.5 -5.0 397.3 -3.0 315.8 1.2
 03:1 211.8 -5.6 318.5 -7.1 285.7 7.5
 03:2 206.9 -5.5  349.3 -5.6 280.0 -1.0
 03:3 239.5 0.7 364.3 4.8 287.2 4.7
 03:4 275.6 10.9 417.1 5.0 344.4 9.1
 04:1 230.4 8.8 340.6 6.9 266.1 -6.9
  04:2 219.9 6.3 373.3 6.9 303.8 8.5
 04:3 246.1 2.8 371.9 2.1 292.3 1.8
 04:4 273.4 -0.8 433.5 3.9 352.4 2.3
 05:1 226.2 -1.9 377.9 11.0 280.6 5.5
 05:2 237.1 7.8 394.8 5.8 305.6 0.6
 05:3 252.6 2.6 397.3 6.8 302.7 3.6
 05:4 291.2 6.5 460.9 6.3 356.6 1.2
 06:1 250.2 10.6 387.7 2.6 294.2 4.8

THE METROPOLITAN AREAS

The retail picture improved in the Tri-Cities Combined Statistical Area during the first quarter. Over the winter months, dollar sales grew 5.0% on a year-to-year basis to reach $1,379 million. Adjusted for inflation, retail activity in the Tri-Cities CSA was 1.3% above same period in 2005.

The stronger retail performance was reflected in the seven counties across the region. Higher dollar sales and sales volume were reported by four counties: Washington (VA), Unicoi, Sullivan, and Carter. Washington (TN) and Hawkins Counties saw higher dollar sales, but adjusted for inflation, real sales activity was flat. Dollar sales and volume fell in Scott County.

 TRI-CITIES CSA KNOXVILLE MSA CHATTANOOGA MSA
 Period  Sales  Y-Y%Ch  Sales  Y-Y%Ch  Sales  Y-Y%Ch 
 2000 5100.3 0.9 9168.1 2.7  5686.4 1.9
 2001 5178.3 1.5 9212.2 0.5 5739.7 0.9
 2002 5293.0 2.2 9369.7 1.7 5699.3 -0.7
 2003 5308.3 0.3 9613.5 2.6 5708.0 0.2
 2004 5509.4  3.8 10037.5 4.4 6001.4 5.1
 2005 5742.5 4.2 10751.7 5.3 6274.1 4.5
 02:1 1246.9 7.1 2155.1 3.5 1360.0 3.4
 02:2 1337.7 2.6 2394.6 4.7 1448.5 -2.1
 02:3 1322.1 3.1 2337.8 1.7 1418.5 0.3
 02:4 1386.3 -2.9 2482.2 -2.5 1472.3 -3.8
 03:1 1215.1 -2.6 2140.4 -0.7 1298.8 -5.2
 03:2 1290.9 -3.5 2392.8 -0.1 1421.4 -1.9
 03:3 1353.1 2.3 2463.0 5.4 1452.1 2.4
 03:4 1449.2 4.5 2617.4 5.5 1544.7 4.9
 04:1 1248.8 2.8 2317.8 8.3 1400.5 8.6
 04:2  1371.3 6.2 2492.7 4.2 1493.5 5.1
 04:3 1382.8 2.2 2492.6 1.2 1496.9 3.1
 04:4 1506.4 4.0 2734.4 4.5 1610.6 4.3
 05:1 1312.8 5.1 2365.3 2.1 1460.4 4.3
 05:2 1436.9 4.8 2637.4 5.8 1563.3 4.7
 05:3 1451.5 5.0 2653.7 6.5 1584.4 5.9
 05:4 1541.2 2.3 2915.3 6.6 1666.0 3.4
 06:1 1378.5 5.0 2553.9 8.0 1524.6 4.4

Retail activity also picked up in the other metro areas of East Tennessee during the first quarter. On a year-to-year basis, Knoxville MSA retail sales showed a strong increase of 8.0% to $2,554 million, while Chattanooga MSA retail sales were up 4.4% to $1,525 million. Adjusted for inflation, sales volume increased 4.2% in Knoxville and 0.7% in Chattanooga.

UNITED STATES AND TENNESSEE

 UNITED STATES TENNESSEE 
 Period   Sales  Y-Y%Ch  Sales  Y-Y%Ch 
 2000 3,294,217 6.5 65,230 3.2
 2001 3,385,577 2.8 65,235 0.0
 2002 3,466,136 2.4 66,387 1.8
 2003 3,615,170 4.3 69,008 4.0
 2004 3,849,748 6.5 72,527 5.1
 2005 4,115,815 6.9 77,544 6.9
 02:1 795,820 2.0 15,241 0.8
 02:2 875,457  1.8 16,711 0.6
 02:3 878,024 4.8 16,767 3.4
 02:4 916,835 1.0 17,668 2.2
 03:1 821,949 3.3 15,515 1.8
 03:2 908,210 3.7  17,240 3.2
 03:3 921,644 5.0 17,669 5.4
 03:4 963,367 5.1 18,585 5.2
 04:1 882,938 7.4 16,701 7.7
 04:2 964,630 6.2 18,153 5.3
 04:3 969,154 5.2 18,268 3.4
 04:4 1,033,026 7.2 19,404 4.4
 05:1 931,049 5.5 17,647 5.7
 05:2 1,038,838 7.7 19,315  6.4
 05:3 1,050,046 8.4 19,626 7.4
 05:4 1,095,882 6.1 20,957 8.0
 06:1 1,007,022 8.2 18,745 6.2

Retail growth continued to be robust in the United States and Tennessee during the winter months. Nationally, dollar sales jumped 8.2% to $1,007 billion, while sales volume increased by 4.4%. This is the first time that U.S. retail sales have exceeded the one trillion dollar level during the slower winter months. Adjusted for inflation, U.S. retail sales have now increased for thirteen quarters in a row. In Tennessee, retail sales reached $18.7 billion, a 6.2% increase on a year-to-year basis. Sales volume was 2.5% above 2005, marking the twelfth consecutive quarter of real growth.

ANALYSIS

The favorable economic trends that have dominated the retailing picture during the past three years continued into early 2006. Nearly all of the retail markets covered by this report enjoyed a good first quarter. This comment could also describe any quarter over the past three years. We are in the expansion phase of the business cycle, where national, state, and local economies enjoy a period of several years of sustainable growth. Under these conditions, the national economic news is generally good, generally the same, and even a bit boring. This situation should not change anytime soon. A recessionary downturn is very unlikely for the next two to three years.

Within the Tri-Cities area, most cities and counties are reporting higher retail activity in each quarter. And as a result, the metro area as a whole has seen increased retail activity. We expect his pattern to continue, especially as long as the regional labor market continues to improve.

Looking across the economic landscape, the two topics that capture our attention are energy prices and interest rates. Petroleum prices are higher now than a year ago, and if anything, are likely to go higher in the future. As long as the rise in energy prices is orderly and moderate, this will not end the business expansion and trigger a recession. The OPEC nations have no interest in disrupting the economies of their customers. Still, there is increasing instability in the major oil producing regions of the world.

A related issue is the Federal Reserve System and its monetary policy. Short term interest rates are now approaching five percent and are bumping into the long term rates. The Fed is still concerned about inflationary pressures linked to higher oil prices and a tighter labor market, and seems ready to continue the upward march in short term interest rates.

This is a balancing act. The Fed wants to keep inflation under control so that the economic expansion can continue. Higher interest rates, however, have the potential to derail the economy. At a minimum, the economic sectors that are sensitive to interest rates will experience slower growth. This includes construction and purchases of consumer durable goods such as autos and household furnishings.

Another factor that is often overlooked is the impact of higher interest rates on the value of the dollar. Higher interest rates in the United States will attract foreign money into our financial markets and push up the exchange rate of the dollar. This will make exports more expensive and imports cheaper, thus reducing exports and increasing imports. This could have a negative impact on the U.S. production of manufactured goods, whether for exporting or for the domestic market.

SPECIAL NOTE

Four significant changes and revisions have been made in the retail sales data used in this report series. Most of the changes affect the state, regional, and local sales figures. (1) In March, the U.S. Census Bureau revised U.S. retail sales data based upon the new 2004 Annual Retail Trade Survey. The data have been revised back to 1992. This type of revision occurs each year and the changes are usually small.

(2) The state, regional, and local retail sales data are now benchmarked to the new 2002 U.S. Census of Retail Trade. The retail census is conducted by the Census Bureau, as a part of the Economic Census, in years ending in a “2” or a “7”. Thus, every five years, this report has to be converted to the new benchmark census. However, the 2002 retail census is very different.

(3) The U.S. Census Bureau conducted the 2002 retail census based on the new North American Industrial Classification System (NAICS) which was adopted by the U.S. as part of the North American Free Trade Agreement (NAFTA). The NAICS definition of retail activity is very different from the retail definition in the older Standard Industrial Classification (SIC) system. The SIC system was created in the 1930s and was used by federal statistical agencies through the mid-90s. For example, all the retail censuses through 1997 used the SIC definition of retail trade. Today, nearly all federal data are based on the more modern NAICS system.

Each month, the Census Bureau reports a sales figure for the United States which is called "Retail and Food Service Sales". As a short hand, this figure is called just “retail sales” by the media. This data series consists of NAICS Sector 44 and Sector 45 which is "Retail Trade", and the NAICS Subsector 722 which is "Food Services and Drinking Places".

Under the old SIC system, "Retail Trade" is Division G, which includes Major Group 58 "Eating and Drinking Places". Under NAICS, the "Retail Trade" category does not include these eating and drinking establishments. Therefore, the Census Bureau has combined the NAICS categories of "Retail Trade" and "Food Services and Drinking Places" to maintain some compatibility with the previous estimates of retail sales based on the SIC system. This report will use the same approach. The “retail sales” estimates shown for states, regions, and localities will be the NAICS retail and food service sales combined. This will preserve comparability with the national figures, and compatibility with the SIC based estimates used in previous reports.

Due to these definitional changes, the new NAICS based retail sales estimates have only been carried back to 2000. Any direct linking with earlier SIC based estimates is impractical.

(4) The last change involves the definition of metropolitan areas. In previous reports, we have used the Metropolitan Statistical Area (MSA) definitions based on the 1990 Decennial Census. The federal government has now redefined and revised metropolitan areas based on the 2000 Decennial Census. The old Tri-Cities MSA has been divided into a Johnson City MSA and a Kingsport-Bristol MSA. A new Tri-Cities Consolidated Statistical Area (CSA) has been designated which is composed of the two new MSAs.

The new Tri-Cities CSA is identical to the old Tri-Cities MSA, and these reports will use the CSA grouping to report our metropolitan retail activity. This report also includes data on the Knoxville and Chattanooga metropolitan areas. To maintain compatibility, we will continue to use the MSA definitions for these areas. The new MSA definition for Chattanooga has added some small counties; the definition for Knoxville has dropped some small counties.

In terms of the data, these are the changes produced. The retail sales estimates for the Tri-Cities are somewhat increased. This is due to the new 2002 benchmark and the change in definition of retail activity. There is no change in geographic coverage. The same comments can be said about the Tri-Cities CSA. The retail estimates for the Knoxville MSA are little affected. The boost in the retail figures due to benchmarking and redefinition has been offset by the loss in the number of counties in the MSA. In the Chattanooga MSA, where counties have been added, the retail figures are substantially increased. Tennessee retail estimates have also been boosted by the new benchmark and the definition change. The U.S. figures are slightly smaller, but have been on the new benchmark and definition basis for the past few years.

Technical Note. This report was prepared in June 2006. The “Retail Sales” figures used in this report are “Retail and Food Service Sales” which is the total of sales in NAICS Sector 44, Sector 45, and Subsector 722. The national retail sales estimates are issued by the U.S. Census Bureau. The state, region, county, and city retail sales estimates are based on state sales tax collections and are benchmarked to the 2002 U.S. Census of Retail Trade. The Consumer Price Index (CPI) from the U.S. Bureau of Labor Statistics is used to adjust the dollar value of retail sales into "real" or volume terms where the effects of price inflation are removed. The sales data are not adjusted for seasonality so comparisons should be made on a year-to-year basis. All dollar figures in the retail sales tables are in millions of dollars.

More information. This report was prepared by Dr. F. Steb Hipple, Professor of Economics, and Research Associate, BBER. For more information, please contact Dr. Hipple c/o Department of Economics, Finance, Geography, and Urban Studies, Box 70686, East Tennessee State University, Johnson City, Tennessee 37614. Phone/Voicemail: 423-439-5304. Fax: 423-439-8583. E-Mail: Hipples@ etsu.edu. Website: http://faculty.etsu.edu/hipples.