by David Stanowski
05 May 2008
Texas Sales Data:
Voting With Their Feet pointed out how well the Texas economy has performed from 1996 to 2006, compared to most other states. Unfortunately, the State Comptroller's Office does not release the data on Texas sales, subject to sales tax, on a timely basis. Many states report their sales data monthly, and it is often available a month or two after it is reported.
The State of Texas reports its sales data on a quarterly basis, and the data is not available, to the public, for almost two quarters after the end of a quarter. This means that the most current data is always about six months old. This severely limits the ability to use this data to get an accurate sense of current, and probable future business conditions.
The State of Texas collects sales tax on 21 different categories of business activities. This report will examine Total Sales (the sum of all 21 categories), and Retail Sales, one of the most important of the 21 categories, for the State of Texas, the City of Houston, and the City of Galveston. The most current data available covers the period 1Q 2002 to 3Q 2007.
The total activity in the Texas economy can not be captured just by using the sales data from the 21 business activities, subject to sales tax, but it should be a fairly good proxy.
Economic activity measured in Dollars doesn't provide an accurate picture of sales growth without using some gage of the buying power of those Dollars. If a business shows sales growth of 5%, but inflation is growing at a rate of 10%, the owner is losing buying power regardless of the positive sales growth, measured in Dollars.
The CPI could be a good measure of buying power, except that the government has drastically manipulated the formula it uses, in recent years, to understate inflation, and overstate buying power. This makes the current CPI formula almost worthless, as every consumer knows from personal experience, because price increases are far higher than what the government reports them to be, using the CPI.
The easiest way to get a fairly accurate measure of the buying power from the sales activity, in the State of Texas, or anywhere else in the U.S., is to use the information available from ShadowGovernmentStatistics.com. This web site has continued to compute the CPI, as it was defined prior to the 1983 and 1998 revisions.
The following graph shows how much the government has manipulated the CPI formula. Does your experience with the current price increases look more like the pre-1983 formula, the pre-1998 formula, or the current formula?
Since the pre-1983 formula was the official CPI, used by the federal government, before the massive fraud began, that is the formula that will be used to "adjust" the sales data in this report, for inflation, in an attempt to get an accurate picture of the buying power of the sales revenues in the State of Texas.
Inflation-adjusted data is the primary focus of this report, because it provides a much more meaningful gage of "real" economic activity than the unadjusted data expressed in "nominal" Dollars, but both series are provided for comparison in each case.
For more information on the manipulation of CPI formulas, see Alternate Data Series.
Texas Total Sales:
The graph of Total Sales for the State of Texas shows a healthy rising trend with large surges in every fourth quarter from 2002 to 2006. These surges are most likely due retail sales during the Christmas season.
When this data series is adjusted for inflation by dividing it by the pre-1983 CPI, the same basic pattern is maintained, except for the fact that 4Q 2006 is now lower than 4Q 2005. This is the first evidence that the statewide economy has begun to slow to the point where its growth is less than the rate of inflation, i.e. real growth is slightly negative.
Looking at the rate of growth is very important when analyzing most financial data, because it usually peaks before the data series begins to turn down, which provides an early warning that whatever is being measured is slowing. The most common way to calculate the rate of growth is as a Year-Over-Year Rate of Change. This removes any seasonality in the data, such as the fact that this data series peaks every fourth quarter.
Notice how the rate of growth climbed as the Texas economy recovered from the recession of 2001-2002, but then peaked in 2Q 2005, and has fallen since then, with a small rebound that began in 2Q 2007. This is another warning of slowing, or even negative growth ahead.
Look what happens to rate of growth when Total Sales are adjusted for inflation. The last six quarters show negative real growth!
Texas Retail Sales:
The graph of Retail Sales for the State of Texas shows a healthy rising trend with large surges every fourth quarter from 2002 to 2006. These surges are most likely due to strong sales during the Christmas season.
When this data series is adjusted for inflation by dividing it by the pre-1983 CPI, the same basic pattern is maintained, except it is much flatter, and the peak is actually reached in 4Q 2003. This means that inflation-adjusted statewide Retail Sales have not shown any substantial growth since 4Q 2002!
The rate of growth graph confirms the weakness shown above with a peak in 4Q 2003, followed by a major decline, and then a nice rebound starting in 1Q 2007.
When Texas Retail Sales are adjusted for inflation, only 2 out of the 19 quarters examined had a positive growth rate, confirming the fact sales have been flat to lower since 2003!
Houston Total Sales:
The graph of Total Sales for the City of Houston shows a healthy rising trend with large surges every fourth quarter from 2002 to 2006. These surges are most likely due retail sales during the Christmas season.
When this data series is adjusted for inflation by dividing it by the pre-1983 CPI, the same basic pattern is maintained, except for the fact that 4Q 2006 is now lower than 4Q 2005. This means that the Houston economy has begun to slow to the point where its growth is less than the rate of inflation, i.e. real growth is slightly negative.
Notice how the rate of growth climbed as the Houston economy recovered from the recession of 2001-2002, but then peaked in 2Q 2005, and has fallen since then. A rebound began in 2Q 2006, but it has been very weak.
When Total Sales are adjusted for inflation, the rate of growth turned negative in 1Q 2006!
Houston Retail Sales:
The graph of Retail Sales for the City of Houston shows a healthy rising trend with large surges every fourth quarter from 2002 to 2006. However, 2006 barely exceeded 2005, due a slowing in growth.
When Houston retail sales are adjusted for inflation, the negative growth from 2005 to 2006 is very clear. In other words, the growth in retail sales was far less than the rate of inflation.
The rate of growth for Houston Retail Sales peaked in 2Q 2005, and actually fell to a negative rate in 2Q 2006, before rebounding.
When the rate of growth in Houston Retail Sales is adjusted for inflation, 8 out of the last 9 quarters have been negative! The rate of sales growth has been less than inflation growth during this period.
Galveston Total Sales:
The graph of Total Sales for the City of Galveston shows a very different pattern than those of Total Sales, for the State of Texas, and the City of Houston. There is still a rising trend, but without the large surges every fourth quarter from 2002 to 2006.
When Galveston's Total sales are adjusted for inflation, they peak in 4Q 2005.
The rate of growth of Total Sales turned negative in 4Q 2006, but it has rebounded smartly since then.
When Galveston's Total Sales are adjusted for inflation, 9 out of the 19 quarters have suffered with negative growth rates.
Galveston Retail Sales:
The graph of Retail Sales for the City of Galveston shows a very different pattern than those of Retail Sales, for the State of Texas, and the City of Houston. There is still a rising trend, but one that appears to be flatter, and without the large surges every fourth quarter from 2002 to 2006. In fact, Retail Sales peaked in 4Q 2005!
With both the Christmas selling season, and the Lone Star Rally, every fourth quarter, why isn't there a surge in fourth quarter sales? Does the City actually collect sales tax from the temporary Rally vendors?
When Galveston's Retail Sales are adjusted for inflation, they have been trending lower since 3Q 2002, with a surge in 4Q 2005. For the most part, local retailers have seen their sales grow at a rate that is less than the rate that their costs have been increasing for at least the last five years!
After recovering from the 2001-2002 recession, the rate of growth of Galveston's Retail Sales were flat to negative for four quarters, recovered into the 4Q 2005 peak, and then dropped into flat to negative rates again. There is no long-term pattern of consistent healthy growth.
Finally, when Galveston Retail Sales are adjusted for inflation, their rate of growth has been flat to negative for the past five and one half years! Is it any wonder that downtown Galveston has been struggling?
1.) The balance of evidence says that the U.S. economy slipped into what will probably be a long and deep recession in 4Q 2007. (see Do You Want to Know). This weakness is being confirmed by the decline in sales tax revenues in many states. (see Sales Tax Collections Decline in Most States)
2.) There are many people that continue to maintain that the State of Texas will not be effected by the fallout from the housing bubble, and the national recession. Inflation-adjusted Total Sales show a peak in 4Q 2005, and negative growth beginning in 2Q 2006, which tends to contradict this point of view.
Incredibly, inflation-adjusted Texas Retail Sales peaked in 4Q 2003, and have shown negative growth since then. Neither of these studies make the case for Texas skipping this recession. In fact, the retail data would tend to say that the State economy has been slipping for quite some time. With Texas maintaining its claim to a strong economy, relative to most other states, imagine what the data looks like from places like Ohio and Michigan!
3.) Many people think that the Houston economy is much stronger than the economy of the State of Texas as a whole, due to the high profits currently being enjoyed by the oil industry. However, inflation-adjusted Total Sales for the City of Houston also peaked in 4Q 2005, and negative growth began in 1Q 2006. This is not good news since the Houston economy has a very direct effect on the Galveston economy.
Inflation-adjusted Retail Sales, in the City of Houston, peaked in 4Q 2005, and began to show negative growth in 1Q 2006; two years later than the State as a whole. Therefore, even with the positive impact of the oil business, Houston is also showing weakness in Total Sales, and Retail Sales.
4.) Inflation-adjusted Total Sales for the City of Galveston shows a much more erratic picture than those for the State, and the City of Houston, but shares the same peak in 4Q 2005. However, Galveston has shown greater strength than the State, or the City of Houston since the peak, with only 2 out of 7 quarters with negative growth!
On the other hand, inflation-adjusted Retail Sales, for the City of Galveston, peaked in 3Q 2002, and have shown negative growth for the last five and one half years. This confirms previous studies that retail, in this City, is showing very, very weak performance, and is not sharing the higher rates of sales enjoyed in many other cities!
Galveston Retail Sales
Retail Sales to Tourists
Retail Sales Per Capita
Considering the fact that the national recession began after the most recent data in this study, it is highly likely that when data for 4Q 2007 is available, around the end of June, it will be show further weakening in the Texas economy.
When analyzing the current financial data, it is hard to find very much that is positive, even in stronger states like Texas. It's easy to begin wondering if anyone is really doing well, these days, after most economic data is adjusted for inflation. It appears that very few people enjoy an income that is growing faster than the inflation rate, and many can't hope to stay even with it, as countless numbers of people are drowning in the sea of higher prices.
Some people with very successful businesses are doing well, but only a handful of superstars are doing so because of their salaries. Movie stars, sports stars, media celebrities, and some CEOs can earn seven, eight, and nine figure salaries, but most of the winners are doing it with financial assets; not with the earnings from their business, or salary increases.
This skewing of income in favor of people with financial assets (stocks, bonds, real estate, commodities) began a long time ago. Inflation-adjusted median income peaked about 1970, which began the trend towards the acquisition of, and eventual gambling with financial assets. This has produced the greatest income inequality in at least 100 years, but the trend should be in the process of reversing, and making incomes more equal, just as it did during the last extreme, in 1929. In other words, a lot of "rich" people are going to be a whole lot less rich than they have been.
Only a year ago Jimmy Cayne's stock in Bear Stearns was worth more than $1.2 Billion; he recently sold it for $61 Million.
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