What can Delaware retailers expect this holiday season? The answer is mixed: a balance of good news and bad news. The good news for Delaware’s economy is that total employment is up 6,500 jobs on a year-over-year basis. This marks the 7th straight month that Delaware employment has increased by more than 1%.
The increase is driven primarily by gains in professional and business services and health care. At this pace, professional and business services jobs in Delaware should regain their pre-recession peak during late 2014. Due to the rocky implementation of Obamacare, there is more uncertainty about continued strong growth in health care. Both in Delaware and the U.S. health care employment has stalled during the last two months and prices are rising slower than inflation…very unusual. Meanwhile retail trade is not hiring and Delaware manufacturing continues to shed jobs, although at a slow rate.
With jobs being added, Delaware’s unemployment rate has fallen to 6.8%, the lowest level since 2008. The bad news is that year-over- year the state’s labor force has declined by 5,800 persons. The population of discouraged workers in Delaware is rising once again.
Wages exported out of state
Employment among Delaware residents is falling even though the employment at businesses located in Delaware is increasing. Almost $2.4 billion of net wages earned by persons working in Delaware ends up being exported to surrounding states, particularly southeastern Pennsylvania.
The personal income of Delaware residents is up only 2.2% annually through the second quarter of 2013. Income from dividends and interest and transfer payments (e.g., Social Security, Medicare, Medicaid, unemployment) are the sources of growth. Wage and salary income of Delaware residents, however, rose just 1.5%, barely keeping pace with inflation. Persistently high unemployment, rising labor force dropouts, and slow growth in personal income is curbing consumption. The major measures of consumer confidence have deteriorated.
It will be a somewhat Merry Christmas for retailers after the federal government shutdown. The rebound in consumer confidence is expected to be slow.
Retail sales growing
Compounding the situation are rising interest rates. The rise in these rates has led to a retrenching in consumer revolving debt and a slowdown in housing sales.
Total U.S. retail sales moved along at a healthy annual growth rate of 4%. High fliers include motor vehicle sales, building material outlets (e.g., Home Depot) and club and superstores. These sales have been sustained by major price discounts which have driven up volume.
Durable good retail sales, including furniture, appliance, and electronics (including computers) are growing more slowly than average despite major discounting.
Tax-free shopping
On the cost side of the ledger, retail rents in Delaware remain modest as vacancy rates remain high. The high state unemployment rate and the large pool of discouraged workers translate into a “buyers” labor market where quality retail employees can be found at modest wages and few fringe benefits.
A saving grace for Delaware retailers is the absence of a sales tax that attracts shoppers from out of state, particularly for large purchases. Compared to southeastern Pennsylvania, New Castle County sales of electronics and appliances per $1,000 of residential personal income is 217% higher. Furniture sales per $1,000 of personal income are 210% higher and even clothing sales are 52% higher.
Because of longer travel times, of course, this out of state boost dissipates as one goes south into Kent and Sussex counties. In addition, almost half of Kent County’s wages come from government. State government is not hiring and federal government employees at the Dover AFB are on furlough one day a week.
DECON First projects average retail holiday sales for Delaware this season. Steep price discounts may lead to above average sales in New Castle County. Average holiday sales are expected in Sussex County and Kent County will be a bit slower than usual.
DECON First (www.deconfirst.com) uses economics to strengthen small businesses. This mission is accomplished by providing accurate, objective, and relevant analysis of the economy, coupled with best practice recommendations that deliver new customers. Direct questions to info@deconfirst.com
