In this week’s Economic Report, Dr. Rick Harper looks at the unexpected boost in retail sales, the underestimated Chinese/U.S. trade relationship, how uncertainty is affecting Florida’s budget, and growth on Nine Mile Road.
U.S. retail sales rose .08 percent in October, which was better than anticipated. But Harper said that there was other good news that shouldn’t be overlooked.
“The October numbers are out, but just as important, the September numbers were revised upward,” Harper said. “They had showed growth at .06 percent, but were revised upward after more data came in up to one percent growth. When you put September and October together, that very strong retail performance makes one think that perhaps that good 2.9 percent gross national product growth initial estimate for quarter three of calendar 2016 could be sustainable.”
Several areas gained more than others, according to the Commerce Department.
“Motor vehicles did well. Sales of new cars and trucks were up,” Harper said. “We also saw gains in building materials, online retailers and hobby shops of all things.”
The numbers were a mixed bag, however, as restaurants and bars saw a slight decrease. Harper said that for the holiday season, retail sales are projected to be strong.
“Consumers have got their debt burden under control,” Harper said. “The share of after-tax income that households are now spending to service their debt and pay their mortgages, car loans and student loans are now down to levels that we haven’t seen in a couple of decades. That will change once interest rates start to rise, but for right now it’s good news.”
The level of debt control is helping retail sales tremendously.
“Typically, people who are at less than the top rungs of the economic ladder tend to spend every dollar that they make,” Harper said. “It bodes well for GDP growth through further retail sales growth.”
A new report by the Rhodium Group, a New York-based market research firm, suggests that the economic ties between the U.S. and China run much deeper than many believe. The report states that the level of integration is underreported on both sides.
“The report says that we have more foreign direct investment into China than U.S. government statistics show,” Harper said. “It’s slowed down in recent years as the Chinese economy has slowed somewhat, but we still have a big stock of investment goods, producing goods and services for the Chinese consumer.”
For the Chinese, the levels are a bit more unclear.
“It’s a little more nebulous on that side to track Chinese investments into the U.S.,” Harper said. “But the net of the report was that these relationships are strong.”
With the uncertainty of economic policy that could come in the first half of next year, there are many different scenarios that could occur.
“It could be that if there is less globalization and less free trade, the Chinese firms and investors would actually need to put that facility in the U.S. in order to have access to the U.S. market,” Harper said. “Certainly, that’s what we hope will happen – that we will see more investment into the U.S. to take advantage of this 320 million market of high-end consumers.”
Uncertainty is also plaguing the Florida Legislature as they begin appropriations for the 2017-2018 fiscal year, which begins in July.
“In Florida, it looks like for the coming fiscal year the amount of available extra income after paying for known necessities is actually quite small,” Harper said. “We’re looking at a net new revenue of less than $100 million dollars to put toward new priorities, so that’s going to mean it’s a tough budget session.”
Harper said there is a lot of pressure to cut taxes in the state from the leadership in Tallahassee, particularly from House Speaker Richard Corcoran.
“If you cut taxes, then you have to cut spending because the states, unlike the federal government, are required to balance their budgets every year,” Harper said. “And then on the senate side under President Joe Negron, there’s a lot of pressure to improve water quality with respect to Lake Okeechobee and the Indian River Lagoon area, so a lot of competing spending pressures and not much new revenue.”
Locally, as investors continue to build new residential projects in the downtown area, retail investment is beginning to spread to other parts of the county as the retiree population continues to grow.
“There has been a lot of new capital investment into the Pensacola market, much of it is in the downtown area and a lot of that is residential investment and that will certainly attract new residents to our area. Probably, somewhat older residents – maybe people retiring early from other parts of the nation or retirees,” he said. “The over-65 demographic is projected to experience rapid growth over the next several decades in Pensacola.”
One area seeing many new retail establishments is the Nine Mile Road area, which will soon include a new location for downtown staple Ever'man Cooperative Grocery & Cafe.
“There is new retail investment going in on the Nine Mile Road corridor,” Harper said. “That’s indicative of growth really spreading out. A healthy urban core tends to ripple through to the outlying areas, even as far as nine miles from the Port of Pensacola.”
Dr. Rick Harper serves as associate vice president for research and economic opportunity at the University of West Florida and oversees the University’s Center for Research and Economic Opportunity. He can be reached at email@example.com. CREO staff writer Mike Ensley contributed to this report. He can be reached at firstname.lastname@example.org.
This article is part of a collaboration between WUWF and the UWF Center for Research and Economic Opportunity.