1.2.1 Total Annual Taxable Retail Sales & Annual Growth Rate

1.2.1 Total Annual Taxable Retail Sales & Annual Growth Rate

As we stand at the cusp of another holiday season, it’s a good time to reflect on the economic consequences of taxable retail sales.

These sales provide primary nourishment to the budgets of local governments. They give an earlier read on the strength of the local economy than we get from federal statistics. And they can tell us how sectors of the economy are faring.

Last year brought glad tidings to all who care about this measure. As Trends indicator 1.2.1 shows, it marked the second year in which these sales in the county exceeded $1 billion, and to be a little more precise, reached $1.13 billion.

The year-over-year growth was less than the prior year, but at 6.8%, it was far above inflation and slightly higher than the overall increase in Washington.

Although not part of the Trends indicator set, quarterly data from the Department of Revenue show that the county got off to a good start this year. In the first quarter of 2020, taxable retail sales clocked in with a 9.7% increase over 2019, more than twice the rate across the state.

This measure doesn’t just calculate transactions at cash registers, whether real, digital or virtual. Taxable retail sales cover some manufacturing and construction, hardly items we associate with consumption, as well as other sectors. And as most know, retail sales of food, medicine and many services are not taxable in Washington.

Over the past decade, taxable retail sales in the county have grown cumulatively by 72%. That’s a fast clip overall, and as one can observe, especially fast since 2014. To better understand where Walla Walla’s growth has taken place, let’s examine some key components of the measure, using 2019 data.

A first takeaway might surprise: the “retail trade” category (what most of us associate with retail) constituted only 43% of the total in indicator 1.2.1. The second largest component was construction, accounting for 18% of total retail taxable sales. Third largest was the hospitality sector, largely made up of restaurants, at 11%. The three sectors accounted for nearly 70% of all taxable retail sales.

Within the retail trade category, the largest single sub-category has typically been the auto sector. Automobiles, new and used, as well as auto parts and the RV trade, made up 18% of the category in 2019. Almost as large were sales at general merchandise stores (department and big box stores), at 18%. Not too far behind was the activity at building supply and home improvement stores, at 13%.

The segment that has grown the most since 2015 has been retail trade, unlike the Tri Cities’ experience over the same period, where construction notched the fastest growth. Its cumulative growth here over the past five years has been 39%. One takeaway: the effort to keep more retail sales local may well be succeeding. This success is visible on Trends indicator 1.2.2, which looks at retail sales per capita in the county.

Construction has closely followed, with the rate of taxable sales on its activities showing 37% cumulative growth over the past five years. The rate of growth of taxable activities on the third largest segment — hospitality — landed third among the top three, showing 24% cumulative growth.

What about the rest of this year? Data for the second quarter will not be released until December. They will undoubtedly show a steep year-over-year drop, if the experience here mirrors that of the state and nation.

Data recently released from the U.S. Bureau of Economic Analysis noted a 26% decline in the second quarter of Washington state’s gross domestic product. While that measure is certainly broader than taxable retail sales and while there isn’t a perfect correlation between state GDP and Walla Walla taxable retail sales, the magnitude of the decline certainly points to a double-digit decline in local sales.

What about the second half of this year? It will likely be much better, if national trends hold lessons. Automobile sales have been strong across the country and construction has been far more robust than forecasters predicted at the start of the pandemic.

These sources of strength should show up locally in third quarter results. Just released advanced estimates of national GDP show a rebound of about 35% over second quarter.

The fourth quarter should be more subdued, however. This is typically the quarter that soft good retailers, jewelry stores and restaurants depend on to make their annual numbers. In a Phase 2 economy, and one accompanied by winter, it seems highly unlikely that shoppers will be thronging to malls and dining establishments.

Yet, “retail trade” sales will happen. Economists at Washington’s Economic and Revenue Forecast Council, for example, look for an approximate 5% rise in consumption nationally.

So 2020 will end up a year of great swings in taxable retail sales. Unless there is a miracle on 34th (or Main) Street in the 4th quarter, the annual result is bound to be negative. Next year should be considerably better, assuming that COVID-19 vaccines are deployed as currently planned and people get vaccinated.