Community Issues That Matter: Retail sales in the Tri-Cities declined in second quarter of 2012

8:40 am | October 5, 2012

After a strong first quarter, retail performance in the Tri-Cities was mixed during the April to June period, according to the Retail Sales Report for the Second Quarter 2012 prepared by F. Steb Hipple, ETSU professor of economics and associate in the Bureau of Business and Economic Research.

Steb Hipple

On a year-to-year basis, dollar sales increased 6.5 percent in Bristol, 1.3 percent in Johnson City, and 1 percent in Kingsport. Adjusted for inflation, retail volume grew 4.6 percent in Bristol, but fell 0.6 percent in Johnson City, and 0.8 percent in Kingsport. In comparison, real sales declined 1.5 percent in the metro area, but grew 2.7 percent in Tennessee, and 2.7 percent in the United States.

“During the second quarter, retail activity in the Tri-Cities Combined Statistical Area was disappointing,” Hipple said. Dollar sales increased only 0.4 percent to $1,692 million, while the metro retail volume fell 1.5 percent. “The county data reflect this regional weakness. Dollar sales and inflation adjusted sales were higher only in Hawkins and Unicoi Counties. Washington (Tenn.), Carter, and Scott saw slightly higher sales but retail volume was down. Dollar sales and volume were lower in Sullivan and Washington (Va.) Counties,” Hipple said.

According to Hipple, during the second quarter, retail growth slowed among the other East Tennessee metro areas. Chattanooga saw the best retail performance with dollar sales rising 5.3percent to $1,940 million, while Knoxville reported a 3.4 percent increase to $3,043 million. Adjusted for inflation, sales volume was up 3.3 percent in Chattanooga, 1.5 percent in Knoxville, but fell 1.5 percent in the Tri-Cities.

The retail recovery lost momentum in the nation and the state during the spring months, Hipple said. Dollar sales in the United States increased for the eleventh quarter in a row — rising 4.7 percent to $1228 billion. Adjusted for inflation, real sales were higher by 2.7 percent — marking the tenth consecutive quarter of real growth. U.S. retail activity declined for seven quarters during the 2008 to 2009 business recession, after 20 consecutive quarters of real growth during the 2002 to 2007 business expansion.

In Tennessee, dollar sales increased 4.6 percent to $22.2 billion. Sales volume was 2.7 percent above 2011 levels, marking the ninth quarter of real growth in retail activity (following 10 consecutive quarters of declining sales volume during the recession).

In his analysis, Hipple said the report shows a slowdown in the retail recovery across the board during the second quarter. The growth in real sales in the nation and the state has been cut in half compared to the first quarter. Metro area sales volume is down for the first time in two years. And the retail picture is mixed among the different cities and counties of the metro area.

“This may not be a cause for concern. Retail sales have been increasing in the nation and the metro level for two years or more. After all this growth, retail activity is back to prerecession levels and a slower growth path would be expected. But how valid is this line of reasoning?

“In dollar terms this is true, but we are still short of pre-recession levels in real terms. The following table compares the second quarter of 2012 with the same period in 2007.

“Between 2007 and 2012, the dollar value of retail sales in the United States increased a healthy 8.9 percent. But adjusted for inflation, real sales are still 1.5 percent below the prerecession high point. We see the same story in Tennessee, the metro area, and the three cities as well. Despite the recent growth in retailing, we are still below the prerecession levels.

“This gives the second quarter slowdown a more ominous portent. The retail recovery has been one of the bright spots in the business picture, as production and employment have struggled to achieve significant and consistent growth. Any slowdown or reversal in retail activity would undercut growth in other economic sectors. As we noted in the last labor market report, the national economy is just beginning to enjoy substantial job creation,” Hipple said.

According to Hipple, the business outlook remains vague. “The national economy is beginning to show some job creation just as retail activity may be softening. Analysts continue to project slow growth and a long and painful return to full economic prosperity. The Presidential election and the possible fiscal cliff are major unknowns in the national picture.

“The regional economy is back to prerecession employment levels, but retail performance still lags and has actually declined. This mixed behavior is not unexpected. People may be working in the local area, but they are reacting to national moods in their retail spending,” Hipple said.

For more information, write to: Dr. F. Steb Hipple, c/o Department of Economics and Finance, Box 70686, East Tennessee State University, Johnson City, TN 37614.

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