ETSU Bureau of Business and Economic Research

Tri-Cities Retail Sales Report

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

THE TRI-CITIES

The retailing picture in the three cities remained chaotic during the third quarter as store openings and relocations again churned the data. For the fifth quarter in a row, Bristol led in retail growth with dollar sales growing 8.9% to $292 million. Johnson City sales were up by 6.4% to $448 million, while Kingsport sales dropped 4.0% to $301 million. Adjusted for inflation, sales volume during the July to September period increased 6.4% in Bristol and 4.0% in Johnson City. Kingsport sales volume was down 6.2% on a year-to-year basis.

 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
 07:3 291.8 8.9 447.9 6.4 301.1 -4.0

THE METROPOLITAN AREAS

Retail sales in the Tri-Cities metro area saw a second quarter of slow growth during the summer months. Dollar sales in the Combined Statistical Area (CSA) increased 2.6% on a year-to-year basis to reach $1,549 million. Adjusted for inflation, retail activity in the Tri-Cities metro area remained only 0.3% above the same period in 2006. Among the seven counties, four reported higher dollar sales and sales volume, led by Unicoi, Scott, Washington (TN), and Hawkins. Dollar sales and sales volume declined in Carter, 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
 07:3 1548.6 2.6 2886.0 2.2 1674.8 1.8

Retail performance declined in the other metro areas of East Tennessee during the third quarter. Knoxville MSA retail sales increased 2.2% to $2,886, while Chattanooga MSA retail growth was only 1.8% reaching $1,675 million. Adjusted for inflation, sales volume decreased 0.2% in Knoxville, and decreased 0.6% in Chattanooga (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 1,144,980 4.0 21,276 3.6
 07:3 1,132,235 3.5 21,059 2.6

Retail performance continued to cool at the national and state levels during the third quarter. In the United States, dollar sales increased 3.5% to $1,132 billion, while sales volume increased by 1.1%. Adjusted for inflation, U.S. retail sales have now increased for nineteen quarters in a row. In Tennessee, retail sales reached $21.1 billion, a 2.6% increase on a year-to-year basis. Sales volume in the state was only 0.2% above 2006 levels, marking (barely) the eighteenth consecutive quarter of real growth.

ANALYSIS

Retail performance trends from the second quarter continued into the summer months. Sales growth is slowing at the national, state, and regional levels. And retail sales in the Tri-Cities are still in transition to a new distribution pattern.

In the United States, retail growth was only 1.1% in real terms during the third quarter (down from 1.3% in the previous quarter). This low level of growth is expected to continue through the holiday selling season and into 2008.

Recall that consumer spending is two-thirds of overall output (real gross domestic product). In turn, retail sales are one-half of consumer spending or one-third of real GDP. Retail growth is a key element in the overall performance of the economy, and any retail growth well below the desired three percent level is a source of concern.

Why is consumer spending and retail activity mired in such a slow growth track? Consumer confidence is low, and consumers are being very cautious in their spending, despite high employment levels. The meltdown in the sub-prime mortgage market has caused housing prices to tumble. Their homes are the major financial asset for most American families, and lower home prices makes consumers feel poor, and spending suffers. Higher gasoline prices and concerns about a possible recession in 2008 also add to the nervousness of consumers.

In Tennessee, the growth in retail volume in the third quarter was close to zero. Retail sales in East Tennessee, adjusted for inflation, were down so whatever growth occurred was in Middle Tennessee and West Tennessee. Tax revenues for the state government are behind budget projections, and the Governor has issued a warning about potential budget shortfalls before the end of the current fiscal year.

The retail picture in the Tri-Cities is still confused. It will take a few quarters before the dust of major store openings and relocations settles. Only then will we have a clear look at the reshaped structure of retailing patterns in the area.

As we reported last month, job creation in the Tri-Cities area continues at a record level, yet retail sales growth continues to diminish. Residents are working and earning incomes but share the loss of confidence that is guiding consumer patterns across the nation. Consumers are holding onto their money, and waiting to get a clearer idea of where the economy is headed.

The outlook for the holiday selling season is mixed. Consumers seem to be holding back on their spending. This pattern of caution is expected to continue into 2008 and the most optimistic forecasts are now calling for only modest growth of one to two percent in the new year. Some analysts are calling for a mild recession. Alan Greenspan puts the odds of a business downturn at about 30%.

Technical Note. This report was prepared in December 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.