ECONOMIC PULSE
Posted November 2008
Puget Sound region defies national retail trends, expects holiday sales increases that will continue through 2008 and 2009
The forecast for local merchants is for holiday retail sales increases that are 33 percent higher than nationwide sales increases. Nearly a fifth of retailers’ total sales are typically made in November and December.
Overall, local retail sales in the fourth quarter are expected to be 5.3 percent above the fourth quarter of 2006.
The National Retail Federation expects a 4.0 percent increase in holiday sales nationally during November and December, down from a 10-year average increase of 4.8 percent.* The NPD Group, a market research firm providing news and information on consumer trends and sales, did a national survey of 2,000 people in September and found that only 5 percent of consumers plan to spend less this year. Shoppers are expected to start their holiday shopping later than usual.
Speaking nationally, National Retail Federation Chief Economist Rosalind Wells noted in a press release that “consumers are faced with … a weak housing market and current credit crunch.” She said “consumers will be forced to be more prudent with their holiday spending.”
The national housing market’s reduced sales and lowered home prices are sapping homeowners’ equity. In recent years, homeowners have used equity to finance new cars, remodeling, furniture and other high-ticket spending. Reduced equity takes some of that money out of play.
Locally, we expect to see some short term impact on non-housing retail sales, according to Douglas Pedersen, a principal in Conway Pedersen Economics, Inc.
“The bottom line is there could be as much, over time, as a two percentage point impact on the growth rate of non-housing retail sales due to lower appreciation rates of housing,” Pedersen said. “The effect on spending is not trivial and could show up in this fourth quarter. What we have going for us (in the Puget Sound region) is strong growth in employment and personal income, along with low unemployment rates. All of these mitigate some of the impact of weaker housing sales.”
Compared with the U.S., the Puget Sound region has a stronger housing market, double the population growth rate and 3.9 percent unemployment rate compared with the U.S. rate of 4.6 percent. Topping the regional favorable measures is strong personal income growth of 1.8 percent in the second quarter, which is 50 percent more than U.S. income growth of 1.2 percent.
Locally, fourth quarter spending is expected to continue to increase for all categories 2007-2009.
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Turning from local fourth quarter predictions to annual predictions for the Puget Sound region, we see annual increases in retail sales growth of 6.8 percent in 2007, then moderating to 5.6 percent in 2008 and 5.0 percent in 2009, according to Conway Pedersen Economics, Inc. The chart below shows annual spending in billions of dollars.
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Year-over-year, the percentage change for every category is positive. The high growth rates for 2005 and 2006 were unsustainable. While these rates are moderating in 2008 and 2009, they are still increasing. No category shows a negative growth rate.
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* Because of the different methods used by various sources, national sales are for November and December while local sales are for the fourth quarter.
The Puget Sound Region is King, Kitsap, Pierce and Snohomish counties.
Sources: National Retail Federation press release Sept. 20, 2007; Copyright © 2007 “The Puget Sound Economic Forecaster” Conway Pedersen Economics Inc. September 2007; Washington State Employment Security Department; U.S. Bureau of Labor Statistics; and The NPD Group as cited in a Seattle Post-Intelligencer article on 10/12/07.
SEATTLE AREA ECONOMIC TRENDS
| U.S. ECONOMIC INDICATORS | Q4-07* | Q3-07* | Q4-06 | |
| U.S. GDP (billions) | $11,775.5 | $11,693.9 | $11,513.0 | |
| Annual Growth % Change | 2.8% | 2.6% | 2.4% | |
| Inflation (CPI) U.S. | 2.091 | 2.080 | 2.022 | |
| PUGET SOUND ECONOMIC INDICATORS | Q4-07* | Q3-07* | Q4-06 | |
| Inflation (CPI) (Seattle-Bellevue-Everett) | 2.183 | 2.170 | 2.096 | |
| EMPLOYMENT | 1,838,300 | 1,827,800 | 1,789,900 | |
| - Government | 282,400 | 281,400 | 280,600 | |
| - Wholesale & Retail Trade | 280,200 | 279,200 | 272,100 | |
| - Professional & Business Services | 249,500 | 247,600 | 239,000 | |
| - Information ( incl. Software Publishers) | 89,500 | 88,700 | 85,500 | |
| - Aerospace | 78,500 | 77,200 | 73,500 | |
| Unemployment Rate (Seattle-Tacoma-Bellevue) | 4.2% | 4.1% | 4.4% | |
 Housing Permits |
25,400 | 24,400 | 24,600 | |
| Home & Condo Sales | 70,100 | 70,500 | 69,200 | |
| Average Home Price | $436,800 | $$433,700 | $413,200 | |
| U.S. 30-Year Mortgage Rates | 6.7% | 6.7% | 6.3% | |
 RETAIL SALES ($ billions) |
Q4-07* | Q3-07* | Q4-06 | |
| Total Taxable Retail Sales | $77.550 | $76.182 | $70.807 | |
| Goods | ||||
| - Motor Vehicles & Parts | $13.952 | $13.875 | $13.035 | |
| - General Merchandise | $7.738 | $7.610 | $7.193 | |
| - Food & Beverage | $7.598 | $7.511 | $7.248 | |
| - Gasoline Stations | $5.360 | $5.267 | $4.675 | |
| - Building Materials & Garden Supplies | $4.962 | $4.926 | $4.675 | |
| - Furniture & Electronics | $3.553 | $3.471 | $3.276 | |
| - Clothing & Accessories | $3.085 | $3.043 | $2.898 | |
| Services: | ||||
| - Food Services & Drinking Establishments | $5.826 | $5.740 | $5.468 | |
| Note date change | Aug-07 | Jul-07 | Aug-06 | |
 Airport Passengers (Sea-Tac) |
3,252,371 | 3,220,089 | 3,071,320 | |
Base: King, Kitsap, Pierce and Snohomish counties. Sources and Data Notes: Unless otherwise noted, source is Copyright Conway Pedersen Economics, Inc., Seattle, WA economicforecaster.com September 2007
* Projected
Housing permits are for residential, privately owned units. Retail Sales - only major categories listed. Seattle-Tacoma International Airport Activity Reports