ETSU Bureau of Business and Economic Research

Tri-Cities Retail Sales Report

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

THE TRI-CITIES

Retail performance was very mixed among the three cities during the July to September quarter. In Kingsport retail sales jumped again by 9.9% to reach $331 million. However the recession dominated the retail picture in Johnson City and in Bristol, where dollar sales fell 2.2% and 3.7% respectively. During the past year retail prices have risen by more than five percent. So adjusted for inflation, sales volume was up 4.4% in Kingsport, but declined by 7.1% in Johnson City and 8.6% in Bristol. (Retail sales volume was down 7.4% in Tennessee, and 3.9% 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
 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
 08:3 280.9 -3.7 437.8 -2.2 330.9 9.9

THE METROPOLITAN AREAS

The recession dominated the retail picture in the Tri-Cities metro area during the third quarter. Dollar sales in the Combined Statistical Area (CSA) increased 0.9% to $1,563 million. But adjusted for inflation, retail volume in the Tri-Cities metro was 4.1% below the same period in 2007. Real sales declined in six of the seven metro counties. Only Washington (VA) county reported higher dollar sales and sales volume. Sullivan, Scott, and Unicoi had higher dollar sales but inflation adjusted sales were down. Retail sales and volume were lower in Hawkins, Carter, and Washington (TN) 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
 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
 08:3 1563.1 0.9 2746.3 -4.8 1620.6 -3.2

Retail performance deteriorated further in the other metro areas of East Tennessee over the summer months. Chattanooga MSA sales revenues fell 3.2% to $1,621 million, while Knoxville MSA sales were down 4.8% to $2,746 million. Adjusted for inflation, sales volume dropped 8.1% in Chattanooga and 9.6% in Knoxville (compared to the 4.1% 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
  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 1,166,513 2.5 21,303 0.1
 08:3 1,139,697 1.2 20,543 -2.4

The deepening recession dominated the retail picture at the national and state levels as well. In the United States, dollar sales increased 1.2% to $1,139 billion, but adjusted for inflation, real sales were lower by 3.9%. This marks the third decline in a row, after twenty consecutive quarters of real growth during the 2002 to 2007 business expansion. In Tennessee, dollar sales fell 2.4% to $20.5 billion. Adjusted for inflation, sales volume in the state was 7.4% below 2007 levels. Retail activity has now declined for four consecutive quarters in Tennessee, playing havoc with the state budget situation.

ANALYSIS

We can now use the “R” word. On the Friday after Thanksgiving, the National Bureau of Economic Research (NBER) in Boston announced that the United States was in the eleventh month of a business recession. The business cycle peak occurred in December 2007 and since that time the economy has been in the recession phase of the business cycle. The “experts” have finally admitted what everyone already knew – the economy was in the grips of the worst business downturn in a generation.

The national economy has been in a labor market recession and a retail recession since early in the year. The NBER however looks to changes in output (real GDP) to identify the peak and trough (top and bottom) points in the business cycle. And output increased in the first two quarters of 2008 and did not begin to fall until the third quarter. So the NBER tarried until real GDP began to finally decline. It is noteworthy that NBER did use employment figures to set the peak at last December. In January, the national economy saw its first decline in payroll employment and a large jump in the unemployment rate. And these adverse labor market trends are continuing.

As the national economy has slipped into recession, the regional economy has suffered. The local business trends covered by these reports have generally matched the national patterns. So the future of the regional economy will be linked to the events in the national economy, and the outlook for the United States economy is not good. How have we come into this situation?

From 2003 to 2007 there was a speculative bubble in the housing market. And like all bubbles it would eventually have peaked and then collapsed. However, financial firms saw immense profits in lending to housing speculators, and began to feed large sums of money into the bubble. Thus the bubble continued and expanded and drew the imprudent financial sector even further into the process. When the bubble finally popped in spring 2007, it did more than punish the foolish housing speculators. The collapse of housing prices began a chain reaction through the entire financial sector. The financial sector has itself collapsed and we are in a deepening recession as a result. For the first time since the early 1930s we are facing the threat of another Great Depression.

Fortunately, the U.S. government and the Fed are in close co-operation with other countries and central banks to head off a global economic collapse. And that cooperation and massive stimulus interventions are beginning to work. The United States and the world community have ducked the bullet – there will be no repeat of the 1930s. So the good news is we will not have a depression, but the bad news is we are facing the worst recession in 30 years.

What is the outlook for the national economy, and also the regional economy? The recession is not over. That is, business conditions are going to get worse. So the next few months will bring more of the types of bad news associated with an economic contraction. The general expectation is that the bottom of the downturn – the business cycle trough - will not happen until next spring. After that, there is no guarantee that the economy will immediately rebound into a strong recovery. This recession has been lengthened and intensified by problems in the financial sector, and the continuing difficulties in the financial sector could well delay any business recovery until late in 2009.

Technical Note. This report was prepared in December 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.