ETSU Bureau of Business and Economic Research

Tri-Cities Retail Sales Report

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

THE TRI-CITIES

Retail performance was very mixed among the three cities during the second quarter. Kingsport saw a large jump in retail sales which rose by 9.9% to reach $343 million. Sales revenues were up 4.5% in Johnson City to $442 million, while Bristol sales decreased 4.4% to $256 million. During the past year retail prices have risen by more than four percent. So adjusted for inflation, sales volume was up 5.3% in Kingsport, but only higher by 0.1% in Johnson City. Real sales in Bristol were down by 8.4%. In comparison, retail sales volume was down 4.1% in Tennessee, and 1.8% 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
 08:2 255.9 -4.4 442.1 4.5 343.1 9.9

THE METROPOLITAN AREAS

Retail performance declined again in the Tri-Cities metropolitan area during the April to June period. Dollar sales in the Combined Statistical Area (CSA) increased 1.8% to $1,571 million. But adjusted for inflation, retail activity in the Tri-Cities metro was 2.4% below the same period in 2007. Among the seven metro counties, higher dollar sales and sales volume were reported by only Washington (VA) and Unicoi counties. Sullivan and Washington (TN) saw higher dollar sales but inflation adjusted sales were down. Retail sales and volume were lower in Scott, Carter, and Hawkins 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
 08:2 1571.2 1.8 2837.4 -3.1 1698.3 -0.3

Retail performance decreased again in the other metro areas of East Tennessee. In the spring quarter, Chattanooga MSA sales revenues fell 0.3% to $1,698 million, while Knoxville MSA sales were down 3.1% to $2,837 million. Adjusted for inflation, sales volume dropped 4.5% in Chattanooga and 7.1% in Knoxville (compared to the 2.4% 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 1,074,582 3.8 19,669 -0.9
 08:2  1,166,597 2.5 21,303 0.1

The retail picture was bleak again at the national and state levels. In the United States, dollar sales increased 2.5% to $1,167 billion, but adjusted for inflation, real sales were lower by 1.8%. This marks the second decline in a row, after twenty consecutive quarters of real growth in U.S. retail sales. In Tennessee, dollar sales were up only 0.1% to $21.3 billion. Adjusted for inflation, sales volume in the state was 4.1% below 2007 levels. Retail activity has now declined for three consecutive quarters.

ANALYSIS

With the second quarter data in hand, it is now clear that a broad decline in retail performance is underway. Adjusted for inflation, retail sales were down in the nation, the state, the region, and most of the individual cities. Retail sales volume has declined for two quarters in the United States, three quarters in Tennessee, two quarters in the Tri-Cities CSA, five quarters in the Knoxville MSA, and four quarters in the Chattanooga MSA.

Among the three cities, sales activity in Bristol has decreased for the past three quarters. Kingsport sales are up in the second quarter, but this follows four quarters of decline. Johnson City has seen lower or flat sales in three of the past five quarters. It must be noted that some of the erratic patterns among the three cities has been due to store closings, openings, and relocations.

Nevertheless, we are seeing a broad and enduring decline in a very important category of business activity. Retail sales account for one out of nine non-farm jobs, one-half of household spending, and one-third of total production (gross domestic product). From a retailing perspective the national and local economies are in a recession.

The labor market statistics also show a national and local economic decline. At the national level, overall employment levels have shown little growth, while payroll jobs have decreased every month this year. The national unemployment rate has risen from under five percent to over six percent since January, and we are close to the unemployment peak of the last recession. In the region, employment growth has been flat for the past two quarters and the level of unemployment has been increasing since mid 2007.

So the evidence is in – we are in a recession. But wait! The overall measure of economic activity – real gross domestic product – does not show a decline. In fact, in the second quarter, the U.S. economy grew at an annual rate of over three percent. And as we have discussed in previous reports, a three percent growth rate is exactly what we want.

So what is happening? We have to look at the components of GDP, and the picture is not a good one. For nearly two years, the growth of total production has been very erratic. And this has been due to swings in three very volatile elements of total production – exports, imports, and inventories of goods. Usually, these components of GDP are supposed to be zero over time -- exports and imports cancel out and inventories are stable.

The three basic parts of total production are consumer goods and services, capital goods, and public goods and services. Ideally, all three components should be growing at three percent a year. Yet the production of consumer goods and services for households is increasing at a feeble one percent rate, the production of capital goods for business firms is actually declining, and the government production of public goods and services is barely growing at all. The underlying economy is not well.

What does this mean for the Tri-Cities area? As these reports have shown, the region is affected by national business conditions. And the weakness in the U.S. economy in retailing and labor market conditions is reflected in the local business picture. So to look to the future for the area, we must look to the future of the national economy.

By one perspective, the national economy is in a recession, but may be nearing the end of this business downturn. This is the optimistic scenario (worst behind us), and projects that economic conditions (including retail sales) will be back to more normal levels next year. The alternative perspective is that the declines in retailing and labor market conditions are a prelude to a conventional recession where real GDP will decline over the next two quarters. This pessimistic scenario (worst ahead of us) would mean that normal business conditions would not be seen until late 2009.

The exact direction of the economy should become clear over the next few months. If the worst is indeed behind us, then we should start to see positive news about retail sales and employment levels. If we are still facing difficult times, then retail performance will continue to deteriorate and the unemployment rate will go even higher.

Technical Note. This report was prepared in September 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 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.