Jeff Smith 4 p.m., Aug. 28
Three-Year SD Consumer Spending Drop Worst Since Great Depression
Taxable retail sales, a measure of consumer spending, plunged 17.4% the past four years, the greatest decrease since the Great Depression, says Kelly Cunningham, economist for the National University System Institute for Policy Research. However, consumer spending in the rest of California plummeted 19% and San Diego did better than other Southern California cities, says Cunningham, who used data from the California State Board of Equalization for the calculation of dismal 2006-2009 sales.
Taxable sales fell 0.7% in 2007 (the recession began in that year's fourth quarter), 4.5% in 2008 and a staggering 12.8% in 2009, when sales fell to $39.5 billion, the first time since 2002 they had been lower than $40 billion in the county. Get this: adjusted for inflation (the proper economic method of measurement), sales fell to 1997 levels, when the county had 560,000 or 1 in 5 fewer residents.
Adjusted for inflation, sales per capita have fallen by 25.6% since the 2005 peak. Inflation-adjusted per capita retail sales in 2009 were the lowest since -- hold your hat -- 1967. Since 2006, the largest decline was in National City, 30.3%. Escondido, Lemon Grove and El Cajon had the next biggest drops, between 26% and 28%.
Based on preliminary Board of Equalization data for the first three quarters of 2010, California taxable sales should rise 1% this year while San Diego goes up 2.4%, well above other Southern California counties. However, it is likely to take more than a decade for inflation-adjusted retail sales in San Diego to get back to previous levels, says Cunningham. Startlingly, he reports that 1 of every 7 San Diego businesses closed in the last four years.
"The imposition of higher taxes on sales transactions by businesses still struggling to recover is worth noting," says Cunningham. Last year, the State of California raised the sales tax rate from 7.25% to 8.25%. "The impact of California adding a 1% higher sales tax rate in 2009 may have broadened the record drop of taxable sales throughout the state," says Cunningham. Proposition D on the November ballot would raise the San Diego sales tax rate from 8.75% to 9.25%. Economists have found varying effects of rising sales tax increases around the country. There is "a need to be more attentively focused on probable changes in buyer behavior due to increasing the absolute rate of taxation and relative differences of sales taxes in the local region," says Cunningham.
Until consumer spending picks up, "businesses are not likely to hire more workers. Until employment picks up, consumers are not likely to resume spending," says Cunningham.