ETSU Bureau of Business and Economic Research

Tri-Cities Retail Sales Report

East Tennessee State University + First Quarter 2008+ College of Business and Technology

THE TRI-CITIES

Retail performance deteriorated significantly in all three cities during the first quarter. Only Johnson City saw an increase in the dollar value of retail sales which rose by 2.6% to reach $417 million. Sales revenues in Bristol fell 3.0% to $272 million, while Kingsport sales decreased 3.5% to $301 million. However, during the past year retail prices have risen by more than four percent. Adjusted for inflation, sales volume was down 1.4% in Johnson City, 6.8% in Bristol, and 7.3% in Kingsport. In comparison, retail sales volume was down 4.8% in Tennessee, and 0.2% in the United States.

 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
 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
 08:1 272.3 -3.0 417.1 2.6 300.5 -3.5

THE METROPOLITAN AREAS

The drop in retail activity in the three cities was part of a general decline in sales volume across most of the Tri-Cities metropolitan area. During the winter months, dollar sales in the Combined Statistical Area (CSA) increased 0.9% to $1,468 million. Adjusted for inflation, retail activity in the Tri-Cities metro area was 3.1% below the same period in 2007. Among the seven metro counties, higher dollar sales and sales volume were reported by only Washington and Scott counties in Virginia. Washington (TN) saw higher dollar sales but inflation adjusted sales were down. Retail sales and volume were lower in Hawkins, Unicoi, Sullivan, and Carter 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
  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
 08:1 1467.7 0.9 2636.0 -4.7 1568.4 -1.2

The other two metro areas of East Tennessee suffered large declines in retail performance as well. In the first quarter, Chattanooga MSA retail sales decreased 1.2% to $1,568 million, while Knoxville MSA sales were lower by 4.7% to $2,636 million. Adjusted for inflation, sales volume fell 5.0% in Chattanooga and 8.5% in Knoxville (compared to the 3.1% decline 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 4,081,692 6.1 77,544 6.9
 2006 4,307,730 5.5 81,560 5.2
 2007 4,482,668 4.1 84,412 3.5
 05:1 926,455 4.9 17,647 5.7
 05:2 1,031,036  6.9 19,315 6.4
 05:3 1,039,499 7.4 19,626 7.4
 05:4 1,084,702 5.3 20,957 8.0
 06:1 995,416 7.4 18,745 6.2
 06:2 1,095,381 6.2 20,542 6.4
 06:3 1,088,359 4.7 20,527 4.6
 06:4 1,128,574 4.0 21,747 3.8
 07:1 1,034,828 4.0 19,851 5.9
 07:2 1,138,169 3.9 21,276 3.6
 07:3 1,125,879 3.4 21,059 2.6
 07:4 1,183,792 4.9 22,226 2.2
 08:1 1,074,591 3.8 19,669 -0.9

First quarter retail conditions were little better at the national and state levels. In the United States, dollar sales increased 3.8% to $1,075 billion, but adjusted for inflation, real sales were slightly lower by 0.3%. This marks the end of twenty quarters of real growth in U.S. retail sales. In Tennessee, dollar sales actually dropped by 0.9% to $19.7 billion. Adjusted for inflation, sales volume in the state was 4.8% below 2007 levels. Retail activity has now declined for two consecutive quarters.

ANALYSIS

Retail conditions deteriorated across the board during the first quarter. Adjusted for inflation, retail sales were down in the nation, the state, the region, and the individual cities. Such a broad decline in such an important category of business activity is usually associated with a recession. Yet other business indicators, while admitting of a business slowdown, do not show an actual contraction in overall business activity. No clear pattern has yet to emerge about what is happening in the region and in the U.S. economy.

As we noted in the previous retail sales report, retail sales account for one-half of consumer spending and one-third of total production (gross domestic product). In real terms retail sales are down. Investment activity (primarily construction) is fifteen percent of GDP, and is way down due to the collapse of residential construction. Yet real GDP continues to expand – 0.6% in the fourth quarter of 2007, and 1.0% in the first quarter of this year. (As a benchmark, the desired growth rate is 3.0%. This level of growth is necessary to absorb the two percent growth in productivity and the one percent growth in the labor force.)

The growth in the national economy is being sustained by other components in GDP such as government spending and international trade. The growth is too slow to keep employment up and unemployment down. The jump in unemployment in May was the largest since the 1980s. So while the retail sector may be in recession, overall production is still modestly increasing.

Turning to the region, the bad news is that retail performance has declined. The good news is that it could be worse. Adjusted for inflation, retail activity was down 3.1% in the Tri-Cities. The decline was 5.0% in Chattanooga, 8.5% in Knoxville, and 4.8% in Tennessee. This is a reflection of the slightly better business conditions in our area. It also highlights the fact that local spending in retail sales is most strongly influenced by the national mood of consumer confidence, not the health of the local economy.

In Tennessee, the major source of tax revenue for the state government is the general sales tax. (Most states use a mix of sales taxes and state income taxes which is more stable through the business cycle.) With the collapse of consumer confidence in the United States, the state is now entering another roller coaster cycle in state budgeting. Unlike some previous budget cycles, the state government is on top of the situation this time. The tight budget presented in January has now been prudently reduced even further.

The local picture in retail activity is still muddy. Due to store closings and store openings there has been a shift in retail sales out of Kingsport and Bristol into Johnson City and Southwest Virginia. Some new businesses have opened in the Model City and the Twin Cities, and would usually replace all or part of the lost retail sales. With the decline in retail activity in the region, however, there are not enough new retail sales for this to happen. Once the regional economy begins to grow again, we can expect better retail performance in Bristol and Kingsport.

When will normal economic growth resume in the nation and the region? There are two views. The optimists feel that the national economy has dodged the bullet. After a few quarters of slow growth, the national economy will resume normal growth by this fall. The pessimists feel that we are still on the precipice and a recession is still ahead of us. What does this mean for the future – where will we be in one year?

In the optimistic scenario (worst behind us), economic conditions and retail sales will be back to normal in a year. We will have been merely inconvenienced by the slowdown. In the pessimistic scenario (worst ahead of us), conditions will be awful in a year. We will be in the full ravages of a recession. So today, what should a business leader or a consumer do? It is the old adage, hope for the best but be prepared for the worst. The direction of the economy will remain uncertain.

Technical Note. This report was prepared in June 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.

Data Note. The U.S. Census Bureau has revised the national retail sales data back to 2005. These revisions occur each year, and tend to be small. For example, U.S. retail sales for 2007 have been reduced from $4,527 billion to $4,482 billion.

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 and Finance, 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.