June 9, 2009
Retail sales in the Tri-Cities declined during the first quarter of 2009 giving the region no respite from the deepening recession.
According to ETSU economists Seb Hipple Kingsport’s sales were down 2.8 percent, Johnson City sales declined by 5.2 percent. Retail sales in Bristol were off 12.3 percent for the quarter.
In comparison, real sales were down 8.9% in Tennessee and 10.2% in the nation as a whole.
The data isn’t much better for the Combined Statistical Area where dollar sales fell sharply – 7.8% to $1,353 million. Adjusted for inflation, retail volume in the Tri-Cities metro area was 7.8% below the same period in 2008.
Hipple’s report says other metro areas of East Tennessee reported the same dismal results during the first quarter. Chattanooga MSA sales revenues fell 8.8% to $1,430 million, while Knoxville MSA sales were down 11.3% to $2,337 million.
In his analysis Hipple says, “during the first quarter, the U.S. economy and the regional economy continued to descend into the worst business contraction in a generation. This appears in all of the various economic indicators – employment, unemployment, output, government deficits, as well as the retail sales covered in this report. And the second quarter will be worse than the first. The economic and business news will continue to be largely negative in the coming months.
“That said, the economy appears to be nearing the bottom point (the “trough”) of this business cycle. The various bits of good news are being called “green sprouts”. What are some significant sprouts? One important item is that the toxic assets in the financial system have declined as the underlying bad mortgages are ended through foreclosure, or refinanced to an interest rate the borrowers can handle. The ongoing restructuring of the financial system is bearing results as routine lending has been resumed. And the residential construction market is showing some signs of revival.
“Most forecasters expect the economic recovery to begin during the third and fourth quarters. But the expectation is that growth in output and retail sales and employment will be modest, and that the level of unemployment and the unemployment rate will continue to increase well into 2010. The jobless rate will exceed ten percent under this scenario.
“Where does this bleak outlook come from? In the last two recessions of 1990-91 and 2001, the recovery phase was very weak and did not create enough new jobs to reduce unemployment – in fact, the unemployment rate continued to increase for more than a year after the end of the recession. These two business cycles were described as “L” shaped since there was no strong recovery.
“The expectation is that the recovery from the 2008-09 recession will also be weak. And since this recession has been very severe (like the 1981-82 downturn), that slow recovery will be starting from a much lower level of economic activity. So it may be 2011 or 2012 before we once again see more normal levels of production and retail activity and employment.
“But there is an alternative scenario that looks to a more vigorous recovery phase (like the recovery in 1982 and 1983). The driving element here is the extraordinary amount of monetary and fiscal stimulus that the central bank and the federal government have pumped into the economy to fend off what was a very real risk of another Great Depression.
“The example here is the deficit spending that the government launched in 1940 and 1941 due to World War II. The unemployment rate going into 1940 was still over ten percent. With the economic stimulus linked to the war, the jobless rate dropped dramatically. While the stimulus today is not at those wartime levels, it is the highest we have ever seen in a peacetime year.”
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