EconSouth (Fourth Quarter 2008)

The Southeastern Economy in 2009

Income and Consumer Spending Showing Signs of Strain
photo of hand holding a penny

Buffeted by falling home values, rising food and energy prices, financial market turmoil, and general economic uncertainty, consumers pulled back on their spending in 2008.

Tax rebates bump up personal income
Total personal income, which includes earnings, dividends, interest, rent, and transfer payments, remained at healthy levels in the Southeast through the second quarter of 2008. But some of the growth in personal income through the first half of the year is related to the federal rebates taxpayers received under the provisions of the Economic Stimulus Act of 2008.

Consumer Spending
Real Estate

Nationwide, the stimulus payments had the most significant impact in Mississippi, where they contributed 2.8 percentage points to second quarter personal income growth. The rebates also gave Alabama and Louisiana significant boosts. Minus the rebates (and other transfer payments, such as unemployment insurance), however, growth in personal income continued a decline that began as early as 2006 in some states (see chart 1).

Sales taxes swoon
Southeast sales tax revenues through the third quarter of 2008 mirrored the weak national retail sales trend. Both sets of data show a slowdown in consumer spending. In the third quarter, consumer spending nationwide posted its first quarterly decline since 1991.

Although significantly lower than their peaks in 2006, sales tax revenues in Mississippi, Alabama, and Louisiana were higher in the third quarter of 2008 than during the same quarter in 2007 (see chart 2). In contrast, sales tax revenues in Florida, Georgia, and Tennessee were lower in the first three quarters of 2008 than during the same period a year earlier. Georgia experienced the biggest decline, with sales tax revenue down 4.3 percent from the first quarter through the third quarter. In Florida, sales tax revenue has declined steadily since its 2005 peak and has remained negative since the beginning of 2007.

Related Links
On the Web:
U.S. Census Bureau's economic indicators
U.S. Census Bureau’s income data

Auto sales slump continues
The auto sales slowdown that began in 2007 continued into 2008. Several factors have contributed to sluggish sales: decreased consumer demand for gas-guzzling trucks and SUVs, greater difficulty obtaining financing as lending standards tighten, and several manufacturers eliminating lease programs.

Vehicle sales in the Southeast, as measured by new vehicle registrations, declined dramatically from January through August, dropping by 12.7 percent from a year earlier. U.S. vehicle registrations over the same period were down 9 percent.

Looking ahead to 2009
The problems that plagued consumers in 2008 will continue into 2009. Declining home values and tighter lending practices will be the biggest constraint on consumer spending, especially for auto sales and big-ticket items. Auto industry analysts expect vehicle sales to remain soft in 2009. Given that the largest component of personal income is wages, an expected weak labor market in 2009 should translate into sluggish personal income growth and a continued slowdown in consumer spending.

Chart 1
Personal Income Growth
Chart of Personal Income Growth
Note: Income does not include transfer payments. Dashed lines imply interpolation of data.
Source: U.S. Bureau of Economic Analysis
Chart 2
Retail Sales Tax Revenue
Chart of Retail Sales Tax Revenue
Source: State Departments of Revenue (for Alabama, Florida, Georgia, Louisiana, and Tennessee) and Mississippi State Tax Commission