Texas Sales Tax Collections Stagnating

Before I believe any stories about improving retail sales, I want to see it in actual sales tax collections. Same store sales are one thing, actual taxes collected are another.

Let's take a look at sales tax collections in Texas for some clues. Please consider faint signs of recovery in sales taxes.

Texas collected $1.8 billion in sales taxes last month, essentially the same amount as in May 2009, Comptroller Susan Combs reported Wednesday.

Taking a glass-half-full perspective on the May numbers, Combs said in a statement that the 0.1 percent increase suggested that the long slide for a key source of state revenue during the past year could be over.

"Total sales tax collections have met or exceeded year-ago levels for a second month in a row, following 14 months of decline. This may indicate that a bottom has been reached," Combs said.

Austin and Round Rock are both about 5 percent ahead of last year in sales tax allocations from the state, and San Marcos, the third-biggest area city for sales taxes, is up 2.7 percent. Most area cities had an increase in allocations this month, which reflect sales that occurred in April.

By contrast, the state's larger cities are still running behind year-ago levels. Dallas collections are down 4.6 percent so far, Houston is off 8.3 percent, and San Antonio is down about a half-percent.

Overall, allocations to Texas cities are down 4 percent this year.

The statewide outlook remains in doubt. The Federal Reserve's Beige Book, a periodic look at regional economies, reported Wednesday that retail activity was down in the district that includes Texas.

While Texas is doing "slightly better than the national average," the report said same-store sales growth — the gain at stores open more than a year — would grow by low single-digit percentages this year.

Texas Cities, Population, Ranking, Tax Collections

• Houston: Pop. 2,208,180 - 4th largest US city - Tax collections Down 8.3%
• Dallas: Pop. 1,240,499 - 9th largest US city - Tax collections Down 4.6%
• San Antonio: Pop. 1,328,984 - 7th largest US city - Tax collections Down .5%

The above rankings per 2007 census ratings.

Tax collections in Austin, the state capitol were up. It's not hard to figure out why the difference in relative performance: government bureaucrats are the group least affected by the recession.

Bear in mind that Houston, Dallas, and San Antonio could not beat extremely easy comparisons of a year ago.

Houston is Bankrupt

Houston continues to careen towards bankruptcy. Actually, Houston, Los Angeles, and numerous other cities are bankrupt. They just continue to pretend otherwise.

Consumer whiplash

MarketWatch notes "Consumer Whiplash"

Retail sales were certainly disappointing, but maybe not as bad as they look.

As we saw last week when retailers reported May same-store sales, there were a lot of elements that made for a lackluster month, including cool weather and the late Memorial Day holiday. That might explain the weakness in department stores and apparel sellers.

Gas prices usually rise in May, but didn't this year, leading to lower gas sales -- not exactly the worst thing, unless you're an oil company.

And the weakness at hardware and building supply stores in May seems to be linked to the surge at these stores earlier in the year when many states offered rebates on energy-efficient appliances.

Real Demand vs. Subsidized Demand

I have had enough of blaming things on weather. More importantly the MarketWatch author misses the connection between real demand and subsidized demand. There is little real demand, only demand brought forward by tax credits and subsidies.

All things considered, today's sales report shows consumers sales were anemic and the Strength of Consumer Recovery Overstated

No Pent-Up Auto Demand, No Pent-Up Housing Demand

Is there any pent-up auto demand left? I rather doubt it. Nonetheless GM is "ramping up production". I suspect by late summer they will be ramping down production.

Building materials plunged 9.3 percent right along with $8,000 expiring tax credits for homes. Gee, who might have figured that out? Since economists couldn't I guess no one could.

Housing is about to go into a nosedive, and that will without a doubt affect big ticket items like appliances.

Appliances had two things going for them: $8,000 home tax credits and rebates for energy efficient appliances. Both brought forward demand. Now what? More rebates and tax credits?

Sales Far Weaker Than They Look

Retail sales were up huge year-over-year but that is vs. an extremely easy comparison. Even still, general merchandise sales are up less that 2%.

Retail Sales are far worse than they look because of methodology: "The advance estimates are based on a subsample of the Census Bureau's full retail and food services sample. A stratified random sampling method is used to select approximately 5,000 retail and food services firms whose sales are then weighted and benchmarked to represent the complete universe of over three million retail and food services firms."

Many stores like Circuit City went out of business. Other chains closed weak stores. This distorted sales reports. Best Buy probably benefited from closure of Circuit City for example. Moreover, some of those sales from closed stores vanished permanently.

The true measure of retail sales is tax collections, and those tax collections have been miserable and are about to take a turn for the worse.

Market cheerleaders continue to overlook the effect of sales brought forward by various stimulus efforts.

Moreover, economists and others overlook easy year-over-year sales comparisons imagining "V-Shaped Recoveries" that are nothing but a mirage of stimulus.

The reality is stimulus and government spending accounts for most of the improvement in demand.

Sales Tax Collections Tell the Real Story

In Texas, 14 months into an alleged recovery (with 14 straight months of declining tax collections along the way), Texas is just now "break even" on tax collections in aggregate, with its largest cities still sporting huge declines coupled with 16 months of declining tax collections.

Congratulations Texas, you are now at "break even" just as the economy is poised for another pullback, led by declining home sales and home prices.

This is not suggestive of a strong recovery, indeed it is not suggestive of a recovery at all.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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