By David Stanowski
15 October 2007
The Texas Comptroller's Office lists 21 industry groups from which they collect sales tax:
Mining/Quarrying/Oil & Gas Extraction
Management of Companies/Enterprises
Admin/Support/Waste Mgmt/Remediation Services
Health Care/Social Assistance
Other Services Except Public Administration
Their data includes the total sales for each of these industry groups, in the City of Galveston. The total combined sales for all 21 industry groups, from 1984 to 2006, are analyzed below. Their data shows gross sales, which offer no insight into potential net profits.
A separate report was already done on Retail Sales alone.
The first graph of Total Sales shows a decline from $761,278,483, in 1985, to $612,286,534, in 1987, and then eleven years of growth, that peak at $1,283,257,818, in 1998. From there, Total Sales declined to $1,027,148,461, in 2001, and then run up to a new high of $1,590,496,109 in 2006.
A more accurate picture of Total Sales can be achieved by simply dividing the Total Sales for each year, by that year's population. This Per Capita Total Sales data series will eliminate any upward pressure in the Total Sales data that is produced just because of population growth.
Galveston's Per Capita Total Sales were $11,841.98, in 1984, and reached $27,656.09, in 2006.
The federal government even "admits" that all economic data should actually be reduced "a little bit" due to the "small amount" of inflation that they inject into the system, to grease the wheels of the economy. When they do this, they utilize the very deceptive statistic, that they developed, for this purpose, called the CPI, to reduce Galveston's Total Sales figures about 2-4% per year. What does this "small reduction" actually amount to?
Galveston's Per Capita Total Sales, after adjustment by the CPI, begin at 113.97, in 1984, drop to 87.76, in 1991, move to a new high of 136.65, in 1998, drop to 101.23 in 2001; and then just barely make a new high of 137.18 in 2006!
But, what is the truth?
In my article, Inflation; the Big Lie, the point was made that we use Dollars as our standard unit to measure economic performance, but that presents a very serious problem, because the value of the U.S. Dollar has declined steadily over time.
Therefore, in order to get a sense of actual, or "real performance", we must find some way to factor out the decline in the value of the Dollar. There are many possible ways to do this, but rather than use an artificially contrived, and perpetually understated method, such as the CPI, I use the price of gold. This is not absolutely accurate, but a market price gives a much better approximation than a government statistic!
Dividing Per Capita Total Sales, by the price of gold, at the end of each year, created the data series called "Real Per Capita Total Sales", shown in the next graph.
Real Per Capita Total Sales hit a low, in 1987, at 22.81 ounces of gold. After that, they rose for eleven years, where they peaked, in 1998, at 75.44 ounces of gold. At that point, we entered a new hyper-inflationary period, and Galveston's Real Per Capita Total Sales have declined about 43% since then!
What does this data tell us?
The expansion of the 1980's and 1990's did indeed end near the stock market top, in 2000, and, regardless of the inflationary illusions created by the real estate bubble, or new highs on the DJIA; a recession (negative growth) began, in 1999, in Galveston! As the financial crises, and job losses continue, more and more people should begin to see this!
Does the change in the price of gold, between 31 December 2001, and 31 December 2006 overstate the amount of inflation, and its effect on Per Capita Total Sales? During that period, the price of gold increased 128.67%, the price of oil increased 207.71%, and the CRB Index (a basket of commodities) increased 106.49%. Therefore, the Real Per Capita Total Sales data series, created using the price of gold, should be a whole lot closer to the truth than adjusting Per Capita Total Sales, using the government's CPI.
Most analysts don't adjust Total Sales data for population or inflation. The typical analysis, done on this type of data series, is the Year-Over-Year Rate of Change, on the monthly data. However, since Galveston's Total Sales are reported quarterly, instead of monthly, the YoY RofC was run on the quarterly data. The graph below shows that the RofC, for Galveston's Total Sales, peaked at 95.03%, in 1Q 1998, and then dropped to -36.47%, in 1Q 1999.
Since then, the RofC has pushed back up to 29.72%, in 1Q 2006, but turned negative again to -4.17%, in 4Q 2006. This study shows that the momentum for Total Sales, in Galveston, peaked in 1Q 1998.
The final graph shows Galveston's Total Sales as they are reported to the Texas Comptroller each quarter. 1Q 2007 has just come in, and it was below the 4Q 2005 high. This means that this high has now held for five quarters, and with the current state of the national economy, it is very likely that the 4Q 2005 high, in Galveston Total Sales, will stand as the high for the foreseeable future. If you multiply the figures in this graph by 2%, it will give you the total sales tax collections for the City of Galveston, which will, likewise, probably not exceed the high seen in 4Q 2005, for quite some time!
This data for the total gross sales, in the 21 industry groups subject to sales tax, is the best available data on the state of the over all vitality of the Galveston economy. When this data is adjusted by the CPI, it clearly shows that the Galveston economy peaked in 1998, but after reaching a low in 2001, it has recovered to a slight new high in 2006! However, when the more rigorous test, using the price of gold, to "adjust" this data, is used; it argues that the Galveston economy peaked in 1998, and has been much weaker ever since.
The previous study of Retail Sales alone showed that they peaked later than the overall Galveston economy, 2000 versus 1998, but Retail Sales have been weaker since their peak than the Galveston economy as a whole.
Even though those who work, in the 21 industries listed above, made more money, i.e. Dollars, in 2006, than they did in 1998, most of them have seen their business, and personal expenses go up even more, so their real income is less than it used to be!! This decline in Real Per Capita Total Sales is not unique to Galveston, during this period.
Does the concept of "Real" Per Capita Total Sales, which are adjusted by the price of gold, versus "Nominal" Per Capita Total Sales, measured in current Dollars, make sense in real life? I think that it does. If Galveston business owners and employees are asked whether they feel that they are doing better now than they were in 1998 (at the peak in Real Per Capita Total Sales); I think many will say that if even they have somewhat higher incomes, they still aren't doing as well, and they can't quite figure out why!
The high inflation since 2001 also means that the City of Galveston can not buy any where near the same goods and services today, as it could in 1998, with the Dollars it receives from sales tax. The lack of real growth, in all the industries that collect sales tax, combined with high inflation, should already be putting a severe squeeze on the City budget.
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