ETSU Bureau of Business and Economic Research

Tri-Cities Retail Sales Report

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

THE TRI-CITIES

Store openings and relocations continued to affect retail activity over the holiday selling season. Johnson City enjoyed strong retail growth with dollar sales increasing 8.9% to reach $500 million. In contrast, fourth quarter retail performance was disappointing in Bristol and Kingsport. After leading the Tri-Cities in retail growth for the previous five quarters, Bristol saw a dollar increase of only 0.9% to $317 million. Kingsport, the city most affected by store relocations, reported a small decline in dollar sales which fell 0.8% to $359 million.

Adjusted for inflation, fourth quarter sales volume increased 4.8% in Johnson City, while declining 2.9% in Bristol and 4.6% in Kingsport. For 2007 as a whole, retail volume was higher by 4.3% in Bristol and 2.7% in Johnson City, while decreasing 3.1% 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
 2007  1157.1 7.3 1778.0 5.7 1283.8 -0.3
 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
 07:4 317.0 0.9 500.5 8.9 359.1 -0.8

THE METROPOLITAN AREAS

Retail sales performance in the Tri-Cities metropolitan area modestly improved in the fourth quarter. Dollar sales in the Combined Statistical Area (CSA) increased 5.1% on a year-to-year basis to reach $1,706 million. Adjusted for inflation, retail activity in the Tri-Cities metro area was 1.1% above the same period in 2006. However, retail growth was concentrated in only three counties. Higher dollar sales and sales volume were reported by Washington (VA), Scott, and Washington (TN) counties. Adjusted for inflation, retail activity was lower in Sullivan, Carter, Hawkins, and Unicoi 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 11307.5 7.0 6579.4 4.9
 2007 6252.0 4.0 11676.0 3.3 6776.8 3.0
 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
 07:4 1706.0 5.1 3095.4 1.1 1810.9 3.1

Retail performance declined in the other metro areas of East Tennessee during the fourth quarter. Chattanooga MSA retail sales increased 3.1% to $1,811 million, while Knoxville MSA sales increased 1.1% to $3,095 million. But adjusted for inflation, sales volume decreased 0.9% in Chattanooga and 2.8% in Knoxville (compared to the 1.1% growth in the Tri-Cities).

For the year 2007 as a whole, the Tri-Cities area had the best sales performance in East Tennessee. Dollar sales in the Tri-Cities metro area rose 4.0% to $6,252 million (up 1.1% in real terms). Knoxville sales increased 3.3% to $11,676 million (up 0.4% in real terms) while Chattanooga sales grew 3.0% to $6,777 million (up 0.1% in real terms).

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
 2007 4,526,996 4.5 84,412 3.5
 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 1,132,153 3.5 21,059 2.6
 07:4 1,192,197 5.0 22,226 2.2

Retail performance became mixed at the national and state levels during the fourth quarter. In the United States, dollar sales increased 5.0% to $1,192 billion, while sales volume increased by 1.0%. Adjusted for inflation, U.S. retail sales have now increased for twenty quarters in a row. In Tennessee, after a flat third quarter, retail performance declined over the fall months. Dollar sales reached $22.2 billion, a 2.2% increase on a year-to-year basis. But adjusted for inflation, sales volume in the state was 1.7% below 2006 levels. This marks the end of eighteenth consecutive quarters of real growth in retail activity in the state.

Looking at the annual data for 2007, retail growth slowed at the national and state levels. National retail sales were $4,527 billion, marking a 4.5% growth in dollar terms and a 1.6% increase in real terms (compared to 2.6% real growth in 2006). Retail sales in Tennessee increased 3.5% to $84.4 billion. Adjusted for inflation, sales volume in the state rose 0.6% during the year (compared to 1.9% real growth in 2006).

ANALYSIS

The retail markets covered in this report displayed very different trends in the fourth quarter of 2007. This in itself is noteworthy. In previous quarters retail activity tended to increase across the board in both dollar terms and real terms. The national, state, and regional economies are undergoing significant changes after several years of a business expansion.

Retail sales represent one-half of household spending and one-third of total production. So any change in retail sales activity is an important indicator of changes in business conditions. Let us look at the national, state, and local economies.

The national economy was flat in the fourth quarter as shown by all the major statistical measures. Unemployment was up slightly, employment growth was slower, and growth in output (real GDP) fell below the one percent level. In contrast, output grew at an annual rate of four percent in the second and third quarters. Over the fall months, retail sales grew one percent in real terms and was one of the positive elements in the national economic picture. But recall that the desired rate of growth in output and retail sales (in real terms) is three percent per year.

The big question is whether the U.S. economy has tipped into a recession in the first quarter of 2008. The early national data is mixed. Retail sales in January picked up and offset some of the losses from a disappointing December. The unemployment rate fell in January. But consumer confidence is declining and various measures of future business activity are turning negative. Still, the Federal Reserve Board is calling for slow growth, but no recession.

The nation may be ducking a recession so far, but the state of Tennessee is hitting rough waters. The general sales tax is the major source for revenues in the state, and those revenues are declining in real terms. Based on this report, we can see that retail activity is down in the state at large, and in two of the three metro areas of East Tennessee. Most of the decline occurred in December which is the heart of the holiday selling season. And the expectation is that sales tax revenues will continue to fall short of the state budget needs. Thus the Governor has proposed an austere budget for the next fiscal year.

In the Tri-Cities area we have an “interesting” retail picture. The city data continues to be muddied by store openings and relocations during recent quarters. Store relocations to Johnson City have boosted sales growth with the city hitting the half-billion dollar mark in the October to December period. In contrast, Kingsport sales have declined in dollar terms and sales volume with the loss of major stores. But new openings in the Model City should turn that situation around. And after several quarters of impressive retail growth, the Bristol retail expansion paused in the fall quarter.

Retail growth in the metropolitan area in the fourth quarter continued at the same rate as the third quarter. On the surface this looks good. However that growth was centered in two places – Johnson City and the Exit 7 area in Southwest Virginia. The other parts of the metro area suffered a decline in retail activity during the holiday selling season.

What are we to make of all this? First, we need to recall that the holiday selling season is critical for most lines of retail stores and for local and state government revenues. The annual profit (or loss) for many stores depends on this one time of the year. And when we look at the monthly data for the nation, state, and area – we see that retail activity was generally down in December, after a fairly good October and November.

At the national level, retail activity declined in December, and had a very small increase in January. Retail growth will continue to be weak, and probably fall below even the one percent growth rate. This means that consumer spending will not be a source of economic growth for the national economy. And with business investment declining, many analysts look to higher export sales to prevent the U.S. economy from sliding into a recession. The state of Tennessee appears to be entering a retail downturn with modest growth in the dollar value of sales, declines in sales volume, and resulting shortfalls in tax collections.

What of the Tri-Cities region? There was positive growth in retail activity in the fourth quarter, and the area continues to enjoy strong employment levels. People are working and earning paychecks but are holding back on spending – five of the seven counties saw lower retail activity in the fourth quarter. As we have noted in previous business cycles, local spending patterns tend to reflect the national mood and shifts in consumer confidence. So area businesses have a difficult task - to convince local residents that the regional labor market is strong, and that it is not imprudent for them to continue their previous level of spending.

Technical Note. This report was prepared in March 2008. 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.