Ted Simons: Good evening and welcome to "Arizona Horizon." I'm Ted Simons. Arizona monthly retail sales are at their highest levels since just before the recession in 2007. Here to help crunch the numbers is ASU economist Dennis Hoffman, always a pleasure, what's going on with these retail sales?
Dennis Hoffman: Ted, great to be here and talking about good news, and it’s very good news on the retail front. The Arizona consumer, evidently, is not distracted by 110-degree temperatures, or whether or not we're going to bomb Syria. They are just going shopping.
Ted Simons: What's driving the increase here?
Dennis Hoffman: Well, you know, part of it is just, when we talk about high single digit, and it's month after month after month, high single digit growth, year over year, part of that is fueled by the fact that in 2009 and in 2010 folks just stopped buying consumer durables. So the the pace of automobile sales, I mean, if you can envision this, all of the automobiles sold in the state of Arizona, in say 2004 and by the way in 2007 the same number, about $8.4 billion sold. And at the bottom, that went down to $4.4 billion. So we lost almost half of it. And now, we're back to 6.4. And it's growing at a clip of 15 percent year on year, so we grow two more years and we'll be back to that 8.5 billion.
Ted Simons: Does that mean folks are buying the more expensive, the durable stuff? Are they going to the 99 Cents store? A little bit in between? What’s happening out there?
Dennis Hoffman: What we saw in the downturn, is that -- and this is very classic when confidence erodes, people just pulled in their horns. I'm not going to guy a car, I'm not going to invest in the house, I'm, you know, just going to hold off. And because of that dearth in sales during the downturn there is a pent-up demand for those durables now, and you have, with interest rates the way that they are, think about an automobile, if you can swing the lease, you can lease an incredibly fuel efficient automobile. Maybe twice the fuel efficiency of your existing car, for like $200 a month? You know, it's quite an amazing deal if you can swing a lease.
Ted Simons: What about things like, like construction, what about Government contracts? What are we seeing there?
Dennis Hoffman: Well, construction is coming back, nowhere near like it was. Again, before this downturn. In fact, you know there is kind of an interesting story, if you look at, at retail today, versus retail three years ago, it's a really great story. If you look at retail today versus 10, 20, or 30 years ago, it's a much different story. So, folks are spending a smaller share of their incomes on taxable retail items. And construction is a big piece of that. We're just not spending as much on construction as we have historically.
Ted Simons: Explain this to me, we have got retail sales the best in years, I mean, since before the great recession. And yet, the unemployment rate sits there stagnant at or near 8 percent.
Dennis Hoffman: We have lost 180,000 workers.
Ted Simons: Is that unusual to have those two?
Dennis Hoffman: It's really fascinating to me, so, and couple this with the statistic that everybody talks about that the employment per population ratio is declining, is that almost at historical or recent historical low. So, there are fewer people working out of the total population. But Ted, if you slice that by age, the older folks, 55 to 64, that older part of the population, and 64 actually, into the 70s. The employment to population ratio, in that cohort is actually going up. And it's going up pretty dramatically. So it's really ironic to me, we have got older people, baby boomer generations staying in their jobs longer than what they have historically. And that's really holding the younger folks back in terms of job opportunities. Now, the data suggests that with fewer workers, we have got aggregate incomes about the same as the peak, and we'll have individual income tax receipts this year at or above the peak level, and part of that is capital gains, by the way. So there is some spending. There’s some income being earned out there, and that's manifesting itself in these retail sales.
Ted Simons: So with unemployment rates stagnant and yet retail sales up so strong, it's not as if a small group of folks are buying everything in sight?
Dennis Hoffman: Well, it's hard to know who is doing all of the buying. I think that the well to do are certainly doing their share and more.
Ted Simons: They are doing well, yes.
Dennis Hoffman: So, that is absolutely true. But, the interesting thing to me is how spending and aggregate incomes can be at or near the peak levels, at least in some of the categories. We still have a ways to go in auto sales, but in many of the others, it's come back very nice, but we're still short 180,000 workers. That suggests that many of the workers back at the peak were lower wage, service providing, mobile, migrant construction workers at lower incomes.
Ted Simons: Last question, we have heard this criticism for years, that Arizona is too dependent on sales tax revenues.
Dennis Hoffman: Right.
Ted Simons: Are you buying that?
Dennis Hoffman: Well, it seems to be, and I followed this. This is year 35 now, geezer time for me. But, you know, it seems to be the only tax, if there is a palatable tax in Arizona, one that the voters will, at least, tolerate. It does seem to be the sales tax. And you see that in the way that they voted on various initiatives, be they transportation to the one cent temporary tax, they seem to have tolerated it, and if you had a broader base, and we have eroded ourselves tax base away, and we have got to get online in the mix, have a broader base, bring in some personal services and, and then, I think, the sales tax could be a real sustaining source of revenue.
Ted Simons: All right. Good stuff, thanks Dennis.
Dennis Hoffman: Thanks, Ted.