EconSouth (Second Quarter 2009)

Fed @ Issue

The View From a Mall

Photo of Michael ChrisztI spent a recent weekend like I spend most weekends—out of town at a ballpark. This time I was in Dalton, Ga., where my daughter's softball team had a long break between games. I suggested that the team head to the local shopping mall, which they all agreed was the best coaching decision I had made in five years. I'm not one to visit the mall by choice—it's just not my cup of tea. But to my 13-year-old and her teammates, well, they were in heaven. I handed my child a $20 bill, and off she went.

Not being well versed in the art of shopping, I decided to make the best of my predicament and traded in my coach's hat for my economic analyst's hat. (After working in the Atlanta Fed's research division for 20 years, I just can't help myself.)

The first thing I noticed was just how crowded the mall was. Knowing that the local unemployment rate in Dalton had doubled over the past year to nearly 14 percent, the number of people there was rather surprising. Sitting outside a popular store, I watched as people came and went. Many people went into the store, but not many came out with shopping bags.

Related Link
Audio icon Retail Sales in the Southeast podcast (MP3 8:55)
Michael Chriszt and Courtney Nosal of the Atlanta Fed's research department discuss retail sales and consumer spending in the Southeast in an interview.

A familiar refrain
Here at the Atlanta Fed, we've heard similar stories for several months from businesses like the one I visited in Dalton and others throughout the Southeast: Shoppers are not buying or not buying as much. Sales and traffic remained at low levels in late April and May and have been largely in line with modest expectations, according to Southeastern retailers.

After a dismal holiday shopping season—national retail sales for December 2008 were down more than 3 percent from a month earlier and more than 10 percent from December 2007—sales perked up in January and February, increasing 1.7 percent and 0.4 percent, respectively, according to the U.S. Census Bureau.

Sales tax data for Southeastern states revealed the weakness late in 2008. Alabama, Florida, and Tennessee all saw their year-over-year sales tax intake fall more than 10 percent. Georgia's was down more than 9 percent, while Mississippi's declined more than 2 percent, according to the states' departments of revenue. Louisiana bucked the trend, with tax revenues up roughly 4 percent on the year for December 2008.

Information from a wide range of business contacts gives us Atlanta Fed researchers a valuable real-time perspective on economic activity.

An article in this issue of EconSouth discusses the impact of the recession on state and local government finances. Subdued retail sales—and lower sales tax revenues—are a large reason why state coffers are running low.

We noticed a pickup in national retail sales in early 2009 that was reflected in regional sales tax collections. Most states did see an uptick, but when we asked retailers about their early 2009 results they were less than enthusiastic, and our contacts in the trucking and shipping industries didn't report an increase in deliveries.

Connecting the dots
This information from a wide range of business contacts gives us Atlanta Fed researchers a valuable real-time perspective on economic activity. Knowing that merchants and shippers have a rather subdued take on current activity in their stores and on the road made us look at the data from early 2009 with caution. Despite positive reports of two months of national retail sales, and knowing that regional sales tax collections were up from their late 2008 lows, we did not view an uptick in retail sales as sustainable because we could not corroborate it with what we were hearing from our business contacts. Photo of an escalator

We weren't surprised, then, when March and April national retail sales reports showed a renewed decline in month-to-month sales and a drop in regional sales tax collections as well. But May's retail sales report surprised us with an increase, so perhaps consumers are indeed starting to increase purchasing. We'd like to see several more months of rising sales before we claim a trend of this sort has developed, however.

In most Southeastern states, tourism spending plays a big role in retail sales. Last March and April, our contacts in the travel industry reported weakening tourism-related spending. Although theme park attendance and cruise bookings were relatively stable, promotions and discounting played a significant role. Our contacts said vacationers overall were spending less. In addition, inbound international travel continued to trend down from a year earlier while business-related travel and convention attendance also declined.

This situation weighs especially heavily on Florida, whose economy depends to a great degree on vacationers' dollars. According to the Florida State Tourism Board, the number of visitors to the state fell 11 percent in the first three months of 2009 compared with a year earlier.

Among merchants, the outlook regarding future sales remains muted. That point brings me back to my trip to the mall in Dalton. After waiting for what seemed like an eternity for my daughter to return from her intra-game shopping spree, I finally spotted her in a clothing store. She walked up to me and gave me my $20 back. If a 13-year-old girl chooses not to buy anything during a two-hour trip to the mall, the outlook for retail sales can't be bright.

Michael Chriszt is an assistant vice president in the Atlanta Fed's research department.