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The State's Economy Is Still Sluggish

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By the appearance started to take shape in many stores in malls and shopping centers, it’s beginning to look a lot like Christmas – the time of year that represents about 20 percent of the retail industry’s total sales.

And based on recent announcements by some national retailers to hire more seasonal workers than last year, it looks like the chains are optimistic about the upcoming holiday selling season.

And there is good reason for that optimism. Employment in the nation is picking up and the unemployment rate is declining. Personal income is up 4.3 percent for the 12 months that ending in July compared with the previous period, or by $612 billion. American consumers like to spend, so much of that increase in income will translate into purchases.
But will they result in more Christmas sales than last year? Back-to-school sales are often a good barometer of holiday sales. This year, back-to-school sales were pretty good, according to department stores such as Macy’s, Kohl’s and J.C. Penney. The National Retail Federation, the nation’s largest retail trade group, expects sales in November and December (excluding autos, gas, and restaurant sales) to increase 4.1% over last year. Last year’s holiday sales, including online business, rose 3.8 percent to $601.8 billion compared with 2012.

Global financial services firm Deloitte is looking for this year’s holiday sales to rise between 4 percent and 4.5 percent from November through January compared with the same period a year ago.

That sales increase sounds about right for the nation and Richmond, but Virginia most likely won’t perform as well. The reason: federal government cuts have slowed economic growth to the degree that it is affecting retail sales in Virginia.

Nonfarm employment grew 0.5 percent in Virginia during August compared with a year ago.

During the same period, employment increased 1.8 percent in Richmond and 1.8 percent in the nation.The worst performing sector in Virginia is professional and business services where employment fell 1.7 percent for the year that ended in August.

It’s not surprising that professional and business services is highly dependent on federal contracting, particularly in Northern Virginia where the average wage in that sector is a little over $100,000.

The unemployment rate in Virginia also is moving in the opposite direction as the nation. After dropping to a low point of 4.9 percent on a seasonally adjusted basis in February 2014, it has inched upward to 5.6 percent in August.

For the U.S., the jobless rate fell from 6.7 percent to 6.1 percent during the same period. With the sluggish economic growth in the state, it’s beginning to look like holiday sales may fall well short of the national average.

A seasonally adjusted six-month moving average of retail sales in Virginia shows 1.7 percent growth from a year ago in July. The Richmond area has seen an average retail sales growth of 5.2 percent.

When inflation is removed from the growth rate, retail sales in Virginia fell 0.2 percent in the state yet rose 3.1 percent in Richmond.

Based on historical trends as well as the general malaise of the Virginia economy, retailers in the state will likely see only 2 percent growth in holiday sales compared with last year.
That means the state budget will remain under pressure from weak sales tax growth. And, it will likely result in more discounts and less profits for Northern Virginia retailers who are hardest hit by federal cuts.

(This article first ran in the Richmond Times Dispatch on October 6, 2014)

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