Retail sales offer glimmer of hope

March 22, 2011

The state received discouraging words recently about last year's employment numbers and about population growth over the last decade.  Retail sales showed a glimmer of hope, however, and unemployment appears to be stabilizing. Economist Dennis Hoffman of the L. William Seidman Research Institute at the W. P. Carey School explained during "The Economic Minute," a monthly feature of the Economic Club of Phoenix lunches. Follow Hoffman's slides. 



Transcript: Economic Club of Phoenix speech, March 15, 2010, Dennis Hoffman speaker.

Before we get to the focus of my talk, I do have to make a couple of comments with respect to what's going on around the globe. Please don't misinterpret my comments. The biggest thing we all need to have in our minds, and certainly you don't need to hear this from an economist, is the human suffering and tragedy that's taking place in Japan over the last few days. But I do feel compelled, because this is the Economic Club of Phoenix, and you look to the W. P. Carey School for insight on data and markets. It is certainly the case that financial markets took a hit around the globe. The Nikkei is off 17 percent or so since the quake. I think everything was sold -- people sold gold this morning. They sold oil. They sold all commodities. They certainly sold equities in the U.S. The only things they bought were solar stocks and iodine this morning.

I think it's going to take several weeks for this to all play out. I want to point out that the wholesale price of gas was down 15 cents per gallon this morning. That's going to take some pressure off. There's no safe havens immediately, but I think calm is the best recommendation. And for now, of course, quite simply our thoughts and prayers go to the people of Japan.

I visited with you in January and talked about revisions in the population numbers. We were widely quoted in the national media over the last couple of weeks. My colleague, Tom Rex, did most of this work, but it also kicked over a revisitation of this old Phoenix versus Philly who's the largest city debate [Phoenix yielded to Philadelphia the number 5 spot on the list of largest cities]. Of course the media got into it with some headlines. But if you look at the data Metro Philly is over twice as big as Metro Phoenix, so I don't really know what all the fuss is about in the first place.

The next thing I want to talk about is the new benchmarks for employment from the Department of Commerce (see slides). Essentially what's happened to employment is we thought employment had grown north of zero about the middle of last summer. Wrong. After employment was re-benched, we are just above zero line just in January.

What I'd like to have you know, then, is that the unemployment rate has been readjusted. The unemployment rate instead of being below the national average throughout much of the downturn is now estimated to have been above the national average. We led the nation in job losses during the downturn. So it's no surprise that we had higher unemployment rates.

I want to caution you about unemployment rates. I think the trend in unemployment is useful but don't get caught up on the level. Let me give you an illustration. The unemployment rate today in Yuma is allegedly 22 percent. It's bad in Yuma. It's bad throughout the state. Labor markets are challenged, but Yuma is probably not at 22 percent. How do I know that? When the statewide unemployment rate in 2009 was 4 percent, the Yuma unemployment rate was allegedly 11 percent. Okay? So just be careful with unemployment rates. Look at pace of job gains, pace of job losses, and things are improving today. That's the basic notion.

Also, unemployment rates in the state of Arizona are certainly better than our competitors California and Nevada (chart: slides). It's kind of like the NCAA basketball argument: We stink less than some of these other people.

The final thing I want to talk about today is retail sales (chart: slides). This is another of the spaghetti charts. You've seen them before in terms of employment losses. So here are the real retail sales declines following the peaks when we've had retail sales recessions; '73, '79 (it lasted all the way through the '82 recession), '86, and 2000 which was a very, very shallow retail trough.

And then of course the current one. This is where we are using three-month moving averages. It looks very lackluster, but I really want to report on the holiday season. A closer look at the data for the holiday season suggests that we grew approximately 6 percent in the November through January holiday period over the prior period last year. Now that's a pretty good growth rate. It was fueled by a 20 percent increase in the purchases of automobiles. So we're studying this automobile purchase thing. We're trying to figure out what's driving automobile purchases. Well now maybe it was just time -- maybe people really needed to make that purchase; or maybe it was that Lexus "December to remember" campaign. [Laughter]

Getting back to retail sales: back in November I suggested that each every one of you on your way home buy two cars. So maybe it's the Economic Club of Phoenix that is responsible here. [Laughter]

A final thought. I think it's truly springtime in the Arizona economy. There are green shoots all over the place. Retail sales growth is likely to average 6 percent or better in the coming quarters. Employment has stabilized, starting to grow. Major businesses, they're announcing expansion in the state of Arizona. We have clearly regained our long-standing position as a very, very affordable housing state. [Laughter]So here's my slogan: "Arizona. No bitter winters. No earthquakes. No devastating tornadoes or hurricanes. No growth restrictions." What's not to like about our future? Enjoy lunch.