ETSU Bureau of Business and Economic Research

Tri-Cities Retail Sales Report

East Tennessee State University + First Quarter 2009 + College of Business and Technology

THE TRI-CITIES

The winter months provided no respite from the deepening retail recession. During the first quarter, dollar sales fell 2.8% in Kingsport, 5.2% in Johnson City, and 12.3% in Bristol. Adjusted for inflation, real sales decreased 2.7% in Kingsport, 5.2% in Johnson City, and 12.2% in Bristol. In comparison, real sales were down 8.9% in Tennessee and 10.2% in the nation as a whole. (Due to lower energy prices, the overall price level in the first quarter was largely unchanged from the same period in 2008. As a result, the percent change in real sales volume is almost identical to the change in dollar sales.)

 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
 2008 1108.3 -4.2 1783.6 0.3 1327.2 3.4
 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
 08:4 299.1 -5.6 486.5 -2.8 352.7 -1.8
 09:1 238.9 -12.3 395.3 -5.2 292.3 -2.8

THE METROPOLITAN AREAS

During the first quarter, dollar sales in the Combined Statistical Area (CSA) declined sharply again, falling 7.8% to $1,353 million. Adjusted for inflation, retail volume in the Tri-Cities metro area was 7.8% below the same period in 2008. Dollar sales and sales volume increased in Scott and Washington (VA) counties. Retail sales and sales volume were down in Hawkins, Carter, Washington (TN), Sullivan, 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
 2008 6174.9 -1.2 10974.4 -6.0 6577.4 -2.9
 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
 08:4 1572.8 -7.8 2754.7 -11.0 1690.1 -6.7
 09:1 1352.6 -7.8 2337.1 -11.3 1430.1 -8.8

The other metro areas of East Tennessee reported the same dismal results during the first quarter. Chattanooga MSA sales revenues fell 8.8% to $1,430 million, while Knoxville MSA sales were down 11.3% to $2,337 million. Adjusted for inflation, sales volume dropped 8.8% in Chattanooga and 11.3% in Knoxville (compared to the 7.8% 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 4,080,678 6.1 77,544 6.9
 2006 4,287,410 5.1 81,560 5.2
 2007 4,432,621 3.4 84,412 3.5
 2008 4,412,886 -0.4 82,071 -2.8
 07:1 1,024,460 3.2 19,851 5.9
 07:2 1,125,933 3.2 21,276 3.6
 07:3 1,112,268 2.8 21,059 2.6
 07:4 1,169,960 4.4 22,226 2.2
 08:1 1,059,840 3.4 19,669 -0.9
 08:2 1,150,554 2.2 21,303 0.1
 08:3 1,123,261  1.0 20,543 -2.4
 08:4 1,079,231 -7.8 20,556 -7.5
 09:1 951,639 -10.2 17,905 -9.0

The fourth quarter of 2008 – the critical holiday selling season – was terrible. The first quarter of the new year was worse in the nation and in the state. In the United States, dollar sales decreased 10.2% to $952 billion. Real sales were lower by the same double digit figure (following the 9.2% decline in sales volume during the previous quarter). This marks the fifth decline in a row, after twenty consecutive quarters of real growth during the 2002 to 2007 business expansion. And, the first quarter is the first time since 2006 that quarterly sales fell below the one trillion dollar level. Tennessee showed a similar retail performance. Dollar sales fell 9.0% to $17.9 billion, and sales volume was 8.9% below 2008 levels. Retail activity has now declined for six consecutive quarters in Tennessee, further savaging the state budget situation.

ANALYSIS

During the first quarter, the U.S. economy and the regional economy continued to descend into the worst business contraction in a generation. This appears in all of the various economic indicators – employment, unemployment, output, government deficits, as well as the retail sales covered in this report. And the second quarter will be worse than the first. The economic and business news will continue to be largely negative in the coming months.

That said, the economy appears to be nearing the bottom point (the “trough”) of this business cycle. The various bits of good news are being called “green sprouts”. What are some significant sprouts? One important item is that the toxic assets in the financial system have declined as the underlying bad mortgages are ended through foreclosure, or refinanced to an interest rate the borrowers can handle. The ongoing restructuring of the financial system is bearing results as routine lending has been resumed. And the residential construction market is showing some signs of revival.

Most forecasters expect the economic recovery to begin during the third and fourth quarters. But the expectation is that growth in output and retail sales and employment will be modest, and that the level of unemployment and the unemployment rate will continue to increase well into 2010. The jobless rate will exceed ten percent under this scenario.

Where does this bleak outlook come from? In the last two recessions of 1990-91 and 2001, the recovery phase was very weak and did not create enough new jobs to reduce unemployment – in fact, the unemployment rate continued to increase for more than a year after the end of the recession. These two business cycles were described as “L” shaped since there was no strong recovery.

The expectation is that the recovery from the 2008-09 recession will also be weak. And since this recession has been very severe (like the 1981-82 downturn), that slow recovery will be starting from a much lower level of economic activity. So it may be 2011 or 2012 before we once again see more normal levels of production and retail activity and employment.

But there is an alternative scenario that looks to a more vigorous recovery phase (like the recovery in 1982 and 1983). The driving element here is the extraordinary amount of monetary and fiscal stimulus that the central bank and the federal government have pumped into the economy to fend off what was a very real risk of another Great Depression.

The example here is the deficit spending that the government launched in 1940 and 1941 due to World War II. The unemployment rate going into 1940 was still over ten percent. With the economic stimulus linked to the war, the jobless rate dropped dramatically. While the stimulus today is not at those wartime levels, it is the highest we have ever seen in a peacetime year.

Technical Note. This report was prepared in June 2009. 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 2008 have been reduced from $4,475 billion to $4,412 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.