Tag: Retail

The Strengths of the National Economy will Impact Colorado

horvath

The U.S. economy is currently stronger than it was in 2014. The good news is the Colorado economy is outperforming the U.S. economy in three key areas:
• The Colorado rate of population growth in 2015 is projected to be 1.6% vs. 0.7% for the U.S.
• The Colorado rate of job growth in 2015 is currently projected to be 3.0% vs. 2.2% for the U.S.
• The recently released GDP data shows that Colorado outperformed the U.S. in the rate of growth, 4.7% vs. 2.2% in 2014.

Currently, the strengths of the national economy outnumber the risks. With that in mind this post reviews the manner in which these strengths will impact the Colorado economy.  For each strength the impact on Colorado is highlighted in italics.

The Fed – Janet Yellen has indicated the Federal Reserve is confident the U.S. economy is performing well enough that interest rates can be raised.

Colorado has experienced stronger economic growth than the nation throughout the first half of the year. The state will continue to experience solid growth in the second half of the year.

Real GDP – After a weak start in Q1, Real GDP growth for the year is projected to be in the 2.5% to 2.9% range – better than last year.

In 2014, Colorado’s rate of Real GDP growth was more than twice that of the U.S. Solid growth is expected to continue in 2015.  strengths of the national economy - retail

Retail – The woes of Q1 seem to be behind us. Consumer spending is expected to be stronger in the second half. This may lead to strong back-to- school sales – a significant source of sales for retailers.

The Colorado economy had strong momentum coming into 2015. It did not experience problems felt elsewhere in Q1. Population and job growth will drive continued solid retail growth in 2015.

Jobs – The U.S. is on track to add more than 3.0 million jobs this year. The unemployment rate and the long-term unemployment rate have continued to decline.

As the year has progressed, U.S. job growth has increased at a solid, but decreasing rate. A similar trend may be happening in Colorado.

Consumer Sentiment – According to the Consumer Sentiment Survey, consumers are upbeat.

The mood of shoppers in the malls and the waiting times at local restaurants suggests that Coloradans are upbeat about the economy.

Industry Sentiment – Purchasing managers have a positive outlook for both goods and services. Manufacturing is more sluggish and may remain that way through the end of the year.

Continued optimism in the non-manufacturing sectors points to ongoing solid growth for these sectors and the Colorado economy.

Inflation – Inflation is below the Fed’s target rate of 2.0%. As interest rates increase, inflation will approach the target rate.

The increase in Colorado housing prices will cause the state’s rate of inflation to further exceed that of the nation.

Construction – There is strong activity in both the residential and non-residential markets. Construction job growth will be constrained by the lack of trained workers.

Despite the lack of trained construction workers, Colorado’s construction industry is responsible for about 18% of the jobs added in 2015.

Housing Prices – The housing market remains strong – too strong in some areas.

Home owners like having greater equity and local governments benefit from higher property taxes.

These strengths of the national economy have created momentum that will strengthen the U.S. and Colorado into 2016.

Colorado Legislative Council and OSPB Optimistic About 2014

horvath

On September 20th, both the Colorado Legislative Council (CLC) and the Governor’s Office of State Planning and Budgeting (OSPB) released their quarterly economic updates. Their preliminary look at 2014 is positive.

Highlights from the CLC outlook for 2014 are:
• The unemployment rate will drop to 6.9%.
• 55,400 wage and salary jobs will be added.
• Retail trade sales will increase by 5.4%.
• 35,400 home building permits will be issued.
• Inflation will increase by 3.2%.
In summary, CLC feels the state will continue to add jobs at a similar rate to 2013, but unemployment will not decline substantially. Retail trade sales will show strong growth and there will be a modest increase in home building permits. Inflation may become an issue.

Highlights from the OSPB outlook for 2014 are:
• The unemployment rate will decline to 6.5%.
• 57,500 wage and salary jobs will be added.
• Retail trade sales will increase by 5.4%.
• 37,300 home building permits will be issued.
• Inflation will increase by 2.4%.
Job growth will be similar to 2013, which will lead to a slight decline in unemployment. Retail trade sales will show strong growth and the housing market will post modest gains. Inflation will remain in check.

For more details, check out the CLC quarterly report  and the OSPB report by clicking here. Both groups produce comprehensive economic updates on a quarterly basis. They are “must read” material for anyone interested in the state economy. The reports are released around the 20th of the month in March, June, September, and December.

©Copyright 2011 by CBER.

Colorado Adds 51,800 Jobs in 2012 – Top Growth in Low Paying Sectors

horvath

Colorado received good news today (3/18) when the Bureau of Labor Statistics released its benchmark revisions for 2012 employment. Overall 51,800 jobs were added, well above the 40,000 mark that the BLS reported in December 2012.

Growth was led by Accommodations and Food Services (AFS); Health Care; Professional, Scientific, and Technical Services (PST); B-to-B Services (Administrative and Waste Services), Employment Services, and Retail Trade.

The best news is that the PST sector added workers. This sector has many companies that are a critical part of the state’s advanced technologies cluster.  Overall, this sector has many occupations that pay above the state average.

The growth of the B-to-B Services and Employment Services are indicators of an improvement in the business sector.  Expansion in AFS, Retail, and Other Services sectors are an indication that consumer spending has improved. Unfortunately, each of these sectors have annual wages below the state average.

Only four sectors lost jobs. Three of the four were governmental sectors.

For additional details, see the “Review of the Colorado Economy – 2012”

Copyright 2011 by CBER.

Slow Retail Trade Recovery Reflects Problems Elsewhere

horvath

Retail trade sales are critical to state and local governments because taxes from sales provide significant revenue. In the case of local governments, sales tax revenue may account for two-thirds of total funding.

The chart (below) shows cumulative retail trade sales from 2008 through the first four months of 2012. The chart shows how sales dropped off in 2009 and 2010, but returned to 2008 levels in 2011. The data is not adjusted for inflation, so the recovered is slightly lengthier than shown in the chart. (The CPI for Colorado for these years is 3.9% for 2008; -0.6% for 2009; 1.9% for 2010; 3.7% for 2011, and 2.5% is estimated for 2012.)

Retail trade data for the first four months of 2012 show that sales are about 2.2% ahead of the 2008 four-month level and 7.7% above the 2011 four-month level. If the latter growth rate is maintained for the final eight months of the year, retail trade sales will exceed $71 million in 2012.

For additional details on the economy click here or go to https://cber.co/

©Copyright 2011 by CBER.

Warmer Weather – A Source of Job Creation?

horvath

Recently, a local economist hypothesized that the recent strength of the Colorado economy was correlated with a warmer winter. The rationale for this hypothesis was that warmer weather may have benefitted outdoor sports such as golf courses, biking, rollerblading, and so forth. In addition, the economist surmised that retail sales would be stronger because warmer weather was more conducive to shopping and increased construction activity.

On one hand, the warmer weather theory sounded plausible because the weather “seemed” milder this winter, but on the other hand it sounded like it was full of hot air.

Premise 1 – The winter was warmer.
If heating degree days are the defining factor for how cold a winter is, then the period October 2011 through March 2012 was negligibly colder than the prior year. For this six month period, the most recent October, December, and February were colder, the two Novembers were similar, and January and March were warmer this year. (A larger number means it is colder, more heat is needed to heat a building).

October 2010         174 heating degree days
November 2010     645 heating degree days
December 2010     789 heating degree days
January 2011          925 heating degree days
February 2011        863 heating degree days
March 2011             513 heating degree days
Total                      3,909 heating degree days

October 2011          312 heating degree days
November 2011      636 heating degree days
December 2011  1,058 heating degree days
January 2012           763 heating degree days
February 2012         935 heating degree days
March 2012              364 heating degree days
Total                       4,068 heating degree days

Possibly it seemed warmer, because there didn’t seem to be snow on the ground that often. A comparison of snowfall for the metro area shows that there was 2.5 times as much snow this past winter as the prior year.

October 2010         none
November 2010    1.5 inches
December 2010    3.3 inches
January 2011         8.0 inches
February 2011       5.3 inches
March 2011            2.5 inches
Total                      20.6 inches

October 2011         8.5 inches
November 2011    4.5 inches
December 2011 16.5 inches
January 2012        4.9 inches
February 2012    20.2 inches
March 2012         none
Total                     54.6 inches

It is truly a shocker to learn that the past winter was actually colder and wetter than the previous year. The timing of the storms, the lack of wind, or some other factor must have created the perception that it was warmer this past winter.

Even with greater snowfall in the metro area, snowpack is below average and 95% of Colorado is reportedly in drought conditions. Two significant forest fires have occurred and summer hasn’t arrived.

Conclusion: Premise 1 is FALSE.

Premise 2 – The warm weather resulted in increased participation for local sporting activities.
There is no easy way to prove this. HOWEVER, the lack of snow in the ski country, at the right times, was in part responsible for diminished lift ticket sales – a decrease of more than 7%. Ouch that hurts! Not only did the lack of snow hurt ski business it will play havoc with rafting businesses this summer.

Conclusion: #2 Possibly true in the metro areas, FALSE in ski areas.

Premise 3 – Warm weather means stronger retail sales.
This is an interesting concept that is difficult to prove. Cold and snowy weather on key shopping days have reduced retail sales during past Christmas shopping seasons, but there is no evidence that warmer weather has increased trade sales. Retail sales are noticeably higher compared to a year ago, but that is attributed to more people working than last year at this time. And in some cases, sales are higher because retailers have finally been able to raise prices. Sales may be higher in the metro areas, but they are probably below expectations in the ski country because of reduced traffic.

Conclusion: #3 – Possibly true in the metro area, FALSE in ski areas.

Premise 4 – Warm weather means increased construction activity.
For the six month period October to March there were 114,500 construction workers this year versus 113,300 last year. Last June, the Construction sector finally bottomed out from the 2007 recession and has been slowly adding jobs since. The big boost of construction jobs in January is more likely a result of improved economic conditions than warmer weather.

Conclusion:#4 – Inconclusive.

One of the fun things about economics is dissecting “grassy knoll” or “warmer weather” theories to see if they are true, partially true, or false. In this case, it is highly improbable that the “warmer” weather was a source of net job creation. The gains in revenue at Denver golf courses, bike shops, and shopping malls were offset by losses on the ski slopes and sales in mountain t-shirt shops, hotels, and restaurants. The warmer weather will also result in a dismal rafting season and increased costs for fighting forest fires.

For a more complete update on the recovery of the Colorado economy, go to https://cber.co/.

©Copyright 2011 by CBER.

Will the Grinch Dictate Retail Sales this Holiday Season?

horvath

It is the time of the year when retail stores pull out their Christmas goods and decorations in anticipation of the upcoming holiday season. At the same time, trade associations and economists dust off their Grinchmeters to project consumer’s willingness to share in the spirit of giving.

Recently, the National Retail Federation (NRF) released their forecast stating that 2011 holiday sales will post a 2.8% increase over last year and the total will reach $465.8 billion. While the increase is weak compared to last year’s increase of 5.6%, it is comparable to the average for the past 10 years. Nationally, retailers are expected to hire a half million seasonal workers this season.

The following factors may point to a better than average season.
• There have been 14 back-to-back months of increased retail sales and momentum is established.
• More people are working than a year ago.
• There is a lower level of household debt, although a portion of that decline is a result of foreclosures.
• The Grinch may get lost this Christmas season.

On the other hand, the following factors may cause sales to be average or worse.
• Lack of consumer confidence.
• Lack of confidence by business leaders.
• Higher inflation, particularly higher gas and food prices.
• Lack of wage and job growth.
• A return of extreme volatility in the stock market.
• Uncertainty associated with the 2012 elections.
• Consumer shopping patterns have been altered.
o Consumers are spending less time in stores, which reduces impulse sales.
o Increased Internet sales.
o Consumers have been trained by retailers to expect sales or heavy discounting.
o Consumers have learned that lower levels of gift giving are acceptable.
o Some consumers have chosen to give gift cards rather than purchase a gift.
• In an article by the New York Times (A Contradiction in the Cargo), the volume(August imports) at the country’s 5 busiest container ports are flat or below the same period in 2010.
o Los Angeles, down 5.75%
o Long Beach, down 14.2% from August 2010; a decline of 15% is projected for September.
o Savannah, GA, down 4%.
o Oakland, down 0.9%
o New-New Jersey, imports were flat.
Fewer imports may signal that retailers are projecting only modest gains in sales this season.

In short, it will be a challenging season for retailers, but not necessarily a buyer’s season for consumers.

Note: The NRF defines “the holiday season” as November and December. Sales generated during these two months are often a significant portion of the annual total for many businesses. The NRF also states that retail sales include most traditional retail categories – discounters, department stores, grocery stores, and specialty stores. Automotive dealers, gas stations, and restaurants are not included.

©Copyright 2011 by CBER.

10 Years After 9/11 – Discounted and Marked Down

horvath

The Retail Sector is a mixed blessing for Colorado. On one hand it is one of the larger sectors, providing jobs for a number of people. As well, retail sales taxes are source of revenue for municipalities and state government. In fact, taxes generated from retail sales are so important that some municipalities are strategically zoned so their borders are lined with retail facilities. It is their intent to prevent leakage from their area and increase sales (and taxes) from neighboring cities and counties.

The retail sector did not fare well during the Lost Decade.

In 2000, Colorado retail employment was 245,200. Ten years later, it was 235,900, or a decline of 9,400 jobs. In 2010, the Retail Sector accounted for 10.6% of total state workers.

During this same period, retail trade sales increased from $52.2 billion in 2000 to $61.1 billion in 2010. It should be noted that sales peaked at $67.3 billion in 2007 before plummeting in 2008. They bottomed out at $58.5 billion in 2009. While sales post an increase of $8.9 billion over this 10-year period, the gain is not adjusted for inflation.

The annualized rate of growth for sales is 1.6%. The annualized rate of growth for Colorado inflation was 2.0%. Not only did the sector lose employment during the Lost Decade, there was a decrease in sales adjusted for inflation.

In short, the Lost Decade has been difficult for both retailers and the government organizations that rely on sales tax revenues to support their operations.

©Copyright 2011 by CBER.