June 10, 2009
Moderator: Welcome to Southeastern Economic Perspectives, an occasional podcast from the Federal Reserve Bank of Atlanta. The following comments discuss consumer spending for the district. Michael Chriszt, an assistant vice president responsible for the Regional Economic Information Network, and Courtney Nosal, an economic analyst who specializes in consumer spending and employment, will provide insight into retail sales. Thank you for joining me, Mike and Courtney.
Michael Chriszt: You're welcome.
Courteney Nosal: Thank you for having me.
Moderator: Consumer spending, or consumption, is a large portion of the nation's economy. It declined significantly last year. Are there any signs that it's picking up?
Chriszt: You hit the nail on the head. It's a big part of the economy and we're looking for signs that it is turning around. In January and February we did see a pickup in retail sales nationally. Unfortunately, in March and April the data have taken a step back, and we've been disappointed with those results. What's really interesting is, when we talk to our contacts here in the Southeast early on in the year and expressed our surprise that retail sales had turned around so quickly in January and February, their take on it was that they really hadn't seen that big of a turnaround, and they were very cautious about the future, and I think that played out in later months as retail sales kind of took a step back.
Moderator: How badly are the regional retailers being hit?
Nosal: Well, we conducted an informal monthly regional retail survey, and looking at some of those numbers, we noticed that 65 percent of the respondents, they reported lower sales than one year ago; this was conducted in April. This number was 77 percent in March, 83 percent in February, and 94 percent in January. So of this 65 percent that reported this in April, only 29 of these respondents said that sales were down significantly. This number was almost 15 percent in March and over 60 percent in February. So it appears that the majority of retailers are being negatively affected, but sales seem to have been beginning to show signs of improvement over the last few months.
Moderator: Are current sales levels still disappointing?
Nosal: Well, in the past two months' surveys, 80 percent of respondents were happy with their current inventory levels. Looking back at the beginning of the year, in January and February, about 35 percent of respondents said that inventory levels were too high, and in March and April there was only about 6 percent who reported that the levels were too high. So looking at these numbers we can interpret that, although these retailers may be experiencing low sales, these levels have been anticipated in the last two months.
Chriszt: And that's a really important point to consider, Jean, that retailers were hit significantly last year as you mentioned and really didn't look at the first two months of this year as indication that things were turning around. They were very cautious with regard to building their inventories and very cautious with regard to future expectations. And I think Courtney's point about the fact that the current level of sales activity being according to their plan speaks to that quite well. There are very low levels of sales, but within their expectations.
Moderator: What about employment on a regional level? If sales are down, are stores hiring, or are they simply staying with the employees that they've got?
Nosal: Well, looking at our regional retail survey again, January, February, and March surveys reported that about 50 percent of the employers experienced no change in their level of difficulty of filling positions compared to a year ago. And the other 50 percent stated that currently it's easier for them to fill these positions. April's survey showed that currently 64 percent of employers find it easier to fill positions compared to a year ago, and the other 36 percent stated that there was no change. None of the retailers since January have reported that it's been more difficult for them to fill positions. One interpretation of these numbers is that there are less jobs available and there are more people unemployed looking for work, hence the ease of employers finding workers.
If we were to look at employment data for the region, we would see that since January the Sixth District unemployment rate has increased from 8.9 percent to 9.2 percent, and every state within the Sixth District has had increasing unemployment rates since the beginning of this year. If we were to exclude the effects of Hurricane Katrina, all of the Sixth District states have reached historically high unemployment rates in either March or April of this year.
Chriszt: That's a really interesting point, and it goes to the fact that retail sales in general have been very soft. And a lot of that—not just talking about retail employment as Courtney was mentioning, but just overall—the employment levels for the states in the district are down significantly, unemployment is up significantly, retail jobs have declined mainly as a result of the fact that retail activity has slowed, and the fact that the unemployment rate is very high, historically high as Courtney noted, means that consumers are going to be very cautious going forward. So when our surveys show that retailers are very cautious planning for the future, that's a big reason why they're cautious: because they don't see consumers coming back very strongly because of the situation in the labor market.
Moderator: Many governments rely on sales tax for their funding. How have lower sales affected the sales tax revenue in the District?
Nosal: All of the Sixth District states are experiencing negative growth.
Chriszt: Just to interject something there real quickly: A lot of these monthly numbers tend to be kind of volatile. The important point, as Courtney mentioned, that year over year every state in the District their sales tax revenues are well below where they were a year ago, which as a sort of a proxy for overall retail sales activity shows just how much merchants' sales have declined over the past year.
This also has some other affects on government spending in general. We've all seen and heard stories about how states are cutting back in different areas of spending, how they're having to cut, in some cases, employment to meet budget constraints that in large respect are an outcome of the decrease in sales activity. So, it's not only that decrease sales activity has reflected in the sales tax data, but it's also the fact that it's causing state budgets to come under great strain and having a significant impact on their spending plans going forward.
Moderator: On a national level, how does the Sixth District compare with the rest of the nation with regard to retail sales and inventory and confidence? Are we a bright spot, or are we holding our own?
Chriszt: I think, looking at the inventory data and also some information that we gather from our regional contacts in the retail industry, we're pretty much in line with what's happening at the national level.
With regard to inventories, both the national data that we see and our responses to informal surveys that we do of merchants throughout the region show that inventories are down significantly. As a matter of fact, in March and April half our retailers that we talked to said that their inventories were down, and the other half basically said that their inventories were flat. So, we're really not that much different at the national level with regard to the inventory question.
With regard to confidence, there's a number of regional measures of consumer confidence that we look at. One produced by the University of Florida, there's another one from Middle Tennessee State University, and a couple of others, and basically they're also in line with what we're seeing at the national level, and that is consumer confidence rebounding quite strongly in the past couple of months. What's interesting about that, Jean—and maybe this leads us to the bigger point—is that although confidence is up we really haven't seen that translate into a significant increase in sales. And as we think about the outlook and think about the path that the economy is on, that's a key question that needs to be answered and one of the things that we're looking at very closely is if this increase in confidence—people starting to feel better about the economy and where we're headed—is going to translate into an increase in sales. And I think, until we really see that happen, the economy is gonna to continue to perform, at the very best, at growth levels that are only very modest.
Moderator: Thanks, Mike and Courtney.
Nosal: Thank you.
Chriszt: Thank you.
Moderator: Again, we've been listening to Atlanta Fed regional research team members Michael Chriszt and Courtney Nosal provide insight into consumption in the Southeast. This concludes our Southeastern Economic Perspectives podcast. Thanks for listening, and please return for more podcasts. If you have comments, please send us e-mail at podcast@frbatlanta.org.