Bought anything lately? Sure you have. And so have tens of thousands of other Arkansans. In fact, Arkansas is trending right along with national retail sales numbers, which have increased nearly 6.5 percent during the past 12 months and 4.8 percent year over year for the first half of 2018. This trend started in November 2009.
But let’s be careful about today’s version of “irrational exuberance,” or even moderate excitement. Why? Well, remember, most of us are enjoying a reduction in income taxes, reflected for many in their regular paychecks. Although savings rates have increased, recent tax cuts reflected in payroll tax reductions and one-time bonuses doled out by corporate employers (rather than, in some instances, across-the-board pay raises) have wound up in retail cash registers. But the bump in retail sales may be a blip. Hope not.
Along with retail sales increases has come an uptick in sales taxes collected by city, county and state governments. In Arkansas, sales tax collections are on track to exceed last calendar year’s record of $2.2 billion by perhaps as much as $100 million. If this trend were to continue, state revenue lost by proposed phased-in rollbacks in state income tax rates could be somewhat offset by an increase in sales tax collections. Policymakers will need to be mindful, however, of the bump-and-blip possibilities.
One segment of seasonal spending is back-to-school purchases. Recent survey results by the National Retail Federation combine back-to-school (K-12) and back-to-college purchases. For the combined back-to-class category, the projection is that $83 billion will be spent both online and at bricks-and-mortar retailers.
“With the economy thriving thanks to tax reform and growing consumer confidence, we expect to see a very strong season,” NRF President and CEO Matthew Shay said. “College spending is expected to be at its highest level ever, and back-to-school will be one of the three highest years on record. Whether shoppers buy now or wait until the last minute, retailers are ready with everything they need for a successful start of the school year.”
Respondents to the annual NRF survey with children in elementary through high school plan to spend an average $685 each, compared with last year’s $688 each, for a 2018 total of $27.5 billion. That’s the third-highest total in the history of the survey.
Actual retail sales increases through July, the 6.5 percent increase noted above, have a hierarchy: Restaurants and clothing stores have seen a 1.3 percent increase, department store sales increased 1.2 percent, and online retailers posted 0.8 percent in incremental sales. Auto sales for the calendar year so far are flat, while sales at pharmacies and home furnishings, sporting goods and hobby stores declined.
Sustained spending levels — based on seasonal-sale prices, increased after-tax incomes, one-time bonuses and the fact that unemployment is below 4 percent — may be temporary. There are some caution lights flashing yellow.
Although consumer confidence is high, and retailers have increased imports in advance of the coming tariff-related cost increases, the threat of a heated protectionist trade policy, aka tariffs, could dampen that confidence and slow consumer spending.
Suppliers in China have now been hit with some $40 billion in tariffs on Chinese-made goods, with another $200 million under consideration. And in the European Union, which has a $1.1 trillion trade relationship with the United States, tariffs on steel and aluminum exports could hurt U.S. manufacturing.
Seems to us that where there are significant trade imbalances, diplomacy and negotiation, rather than the blunt instrument of unilateral tariff increases, would be the better approach, if only to protect our growing economy and local consumers’ buying power — in addition, hopefully, to preventing tit-for-tat retaliation that hurts our private-sector exports in such vital categories as agriculture.
The biggest bugaboo is uncertainty. We just don’t know what’s coming next.
Nick Colas, co-founder of DataTrek Research, stated on a recent CNBC broadcast that companies will begin scaling back hiring and capital investments due to the uncertainty to bottom line costs from tariffs. “It’s the uncertainty that is the corrosive element of the tariff-trade issue,” Colas said.
 |
Craig Douglass of Little Rock is executive director of the Regional Recycling District and is a communications and research consultant. Email him at Craig@CraigDouglass.com. |
Sign up for Daily E-news
