ETSU Bureau of Business and Economic Research

Tri-Cities Retail Sales Report

East Tennessee State University + Second Quarter 2007 + College of Business and Technology

THE TRI-CITIES

Retail sales conditions became mixed during the second quarter, linked in part to relocations of major retail stores. For the fourth quarter in a row, Bristol again led in retail performance as the dollar value of retail sales grew 8.9% to $268 million. Johnson City sales increased only 2.3% to $423 million, while Kingsport merchants saw retail sales decline by 1.8% to $312 million. Adjusted for inflation, sales volume during the April to June period increased 6.1% in Bristol, was unchanged in Johnson City, and fell 4.4% in Kingsport.

 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
 2006 1078.0 7.1 1681.9 3.1 1287.9 3.4
 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
 06:2 245.8 3.7 413.8 4.8 318.0 4.0
 06:3 268.0 6.1 420.9 5.9 313.5 3.6
 06:4 314.0 7.8 459.5 -0.3 362.1 1.5
 07:1 280.7 12.2 406.3 4.8 311.4 5.8
 07:2 267.6 8.9 423.2 2.3 312.2 -1.8

THE METROPOLITAN AREAS

After two quarters of strong growth, retail performance in the Tri-Cities hit a bump in the spring months. Dollar sales in the Combined Statistical Area (CSA) grew only 2.9% on a year-to-year basis to reach $1,543 million. Adjusted for inflation, retail activity in the Tri-Cities metro was just 0.3% above same period in 2006. Turning to the counties, five reported higher dollar sales and sales volume, led by Unicoi, Hawkins, Scott, Carter, and Washington (TN). Sales performance declined in Sullivan and Washington (VA) Counties.

 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
 2006 6009.3 4.7 11307.7 7.0 6579.4 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
 06:2 1499.0 4.3 2867.5 8.7  1651.9 5.7
 06:3 1508.8 3.9 2824.4 6.4 1645.8 3.9
 06:4 1623.1 5.3 3061.7 5.0 1757.1 5.5
 07:1 1454.4 5.5 2766.9 8.3 1587.1 4.1
 07:2 1543.0  2.9 2927.6 2.1 1703.9 3.1

The retail picture was no better in the other metro areas of East Tennessee. During the second quarter, Chattanooga MSA retail sales increased 3.1% to $1,704 million, while Knoxville MSA retail sales grew 2.1% to $2,928 million. Adjusted for inflation, sales volume increased 0.5% in Chattanooga, while dropping 0.5% in Knoxville (compared to the 0.3% growth in the Tri-Cities).

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 3,846,316 6.4 72,527 5.1
 2005 4,088,031 6.3 77,544 6.9
 2006 4,330,457 5.9 81,560 5.2
 04:1 883,015 7.4 16,701 7.7
 04:2 964,928 6.2 18,153 5.3
 04:3 967,749 5.0 18,268 3.4
 04:4 1,030,624 7.0 19,404 4.4
 05:1 926,888 5.0 17,647 5.7
 05:2 1,032,094 7.0 19,315 6.4
 05:3 1,041,436 7.6 19,626 7.4
 05:4 1,087,613 5.5 20,957 8.0
 06:1 999,587  7.8 18,745 6.2
 06:2 1,101,131 6.7 20,542 6.4
 06:3 1,094,291 5.1 20,527 4.6
 06:4 1,135,448 4.4 21,747 3.8
 07:1 1,057,666 5.8 19,851 5.9
 07:2 1,144,961 4.0 21,276 3.6

In contrast, retail growth was higher in the United States and Tennessee (although below recent quarters). Nationally, dollar sales increased 4.0% to $1,145 billion, while sales volume increased by 1.3%. Adjusted for inflation, U.S. retail sales have now increased for eighteen quarters in a row. In Tennessee, retail sales reached $21.3 billion, a 3.6% increase on a year-to-year basis. Sales volume was 0.9% above 2006 levels, marking the seventeenth consecutive quarter of real growth.

ANALYSIS

Retail performance was erratic during the second quarter, with overall lower growth rates and some markets actually seeing falling sales. This mixed picture becomes dramatic when compared to the retail strength in the preceding quarters. Let us look at this situation in each market.

Retail growth in the United States was only 1.3% in real terms. This is the lowest since 2003, and is well below the desired three percent real rate of growth. However, there was some real growth in retailing, and the overall economy picked up strength in the spring period from other types of business activities. But, retail sales are equal to one-third of GDP, and weakness could undermine the business expansion. Analysts will be nervously watching the monthly data on retail sales.

In Tennessee, the 0.9% growth rate was slowest since 2004. The business situation in the state is a reflection of the events in the national economy. There is the added complication that Tennessee state government lives and dies on sales tax collections, and any drop in retail activity could bring havoc to state finances.

The three metro areas of East Tennessee fell below the state growth rate, with the sales volume actually declining in Knoxville. This laggard performance is in contrast to the generally strong retail growth during 2005 and 2006. And the slower retail expansion will affect the cities and counties through reduced local option sales tax revenues.

The retail picture in the Tri-Cities is very confused due to a spate of large store relocations and openings. Retail activity in individual cities and counties is affected. Kingsport, for example, has lost a major outlet and retail sales are down – but over the next year a number of new retail stores will open and sales will rebound. For analysis, our focus will have to be on the sales performance at the metro level.

As we noted last month, job creation in the Tri-Cities area is at a record level. If so, why are retail sales on a much lower growth track? The answer is that buyer psychology in the Tri-Cities area reflects the national mood of buyer caution. Across the country, job holders are building up cash balances and reducing debts, and waiting to get a clearer idea where the economy is headed.

Technical Note. This report was prepared in September 2007. 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.