herald-mail.com

Washington County’s economy is showing new strength, with household and business spending on the rise for nearly a year, according to a study byTheHerald-Mail.

But whether the momentum will continue amid rising economic uncertainties across the globe is a big question, a regional economist said last week.

“One might look at the (local spending) data and conclude we have turned the corner. That doesn’t mean we might not do another U-turn” back into the recession, said Anirban Basu, chairman and chief executive officer of Sage Policy Group Inc., a Baltimore economic and policy consulting firm.

“And there is some substantial probability that this economy is going to take another step backward because of all the uncertainty facing business decision-makers inside and outside of Washington County, Maryland,” Basu said.

Nonetheless, Basu said the newspaper’s study of Maryland sales tax data since before the recession does indicate “we are probably more sure-footed now than we were two years ago and certainly, related to three or four years ago.”

The newspaper examined figures from the Maryland Comptroller of the Treasury, reporting how much sales tax was collected by businesses in the county. The study estimated the actual spending, using data back to 2004 and adjusting for Maryland’s increase in sales tax to 6 cents on the dollar, from 5 cents, beginning in 2008.

Key findings include:

• Since last summer, the total purchase of sales taxed-products in the county has been higher every month than its corresponding month a year ago. For example, such spending here in June 2011 totaled $143.3 million — $300,000 more than the $143.0 million spent in June 2010;
• The upward monthly trend has continued through March, the most recent month for which such figures are available. The 10 months of growth from June 2011 through March 2012 is by far the longest such local expansion since before late 2007, when experts say the recession began nationally.
• Since last fall, the monthly spending increases have become even stronger, rising to levels not seen for that month in three or four years. 
• In September 2011, for example, spending rose to $135 million — the highest level for that month since September 2007, when it reached $143 million. And in March 2012, purchases totaled $145 million — the most for a March since its $153 million crest in 2007 before the recession began.
• Many kinds of businesses here are still struggling.
• Shown against the spending peaks in 2006 and 2007, the county’s economy still has further to climb before it can match the heady days of spending before the recession.

But even that won’t account for the effects of inflation, which have raised the bar still higher for economic recovery, Basu said.

Prices have increased on many products during the recession, making things tougher for all to afford and tightening business profits, he said.

Financial fabric unravels

The economy has many threads.

In 2004 and 2005, as the nation’s financiers doled out easy credit, the demand for housing rose and prices soared. As they did, there was a rapid expansion of jobs, financial investments and consumer confidence.

By early 2007, as people realized the riskiness of subprime loans and adjustable mortgages, the financial fabric began to unravel.

Credit tightened, housing values plunged, and from the construction fields, to the furniture factories, to the bank offices, unemployment increased.

Suddenly, millions of new homeowners — owing more money than their homes were worth and unable to borrow any more — faced foreclosure and bankruptcy.

By examining sales tax data, the newspaper’s study can measure financial activity through much of the recession in many sectors of the local economy.

Those range from restaurants, to supermarkets, to taverns, to nightclubs, to clothing and shoe stores, to department and discount stores, to car repair shops, to furniture and appliance stores, and to purchases by plumbers, electricians, roofers and builders.

The state releases annual data, not month by month, for each of such business sectors. As a result, the newspaper’s study of each sector covered fiscal 2006 through 2011, but does not include data from the current fiscal 2012. That includes the period from July 2011 through March 2012, which is covered by the state’s more general monthly data.

The study doesn’t gauge spending in transactions ranging from real estate, to prescription medicine, to most grocery foods on which Maryland doesn’t charge sales tax.

Also, the data doesn’t factor in much of the estimated millions in Internet purchases by Marylanders.

Although state law sets up a so-called sales and use tax process that covers online sales, the payments are hard to enforce, and it is believed that many don’t pay the tax, according to a spokeswoman in the state comptroller’s office.

Digging a deeper trough

In economic stories it is important to voice caution.

Consider, for example, what happened in the county’s economy after June 2010, whenThe Herald-Mailpublished a front-page story about local business conditions. The headline read: “Economy appears on upward course”.

The story trumpeted spending increases in March and April 2010, which was the local economy’s first such sustained burst since late 2007 and the most recent figures available at that time.

That story asked whether the recession here was over — and the banker, merchant, economics professor and state comptroller quoted then cited hopeful signs, but remained cautious.

As it turned out, the worst was yet to come.

Looking back now, what happened next can be measured more clearly.

A month after the story ran, Maryland issued its sales tax data on purchases made in Washington County during May 2010.

Spending here had totaled just $127 million — nearly $4 million less than in May 2009, according to the newspaper’s calculations.

As the months passed and fresh data was released, the downward trend was set. In June 2010 and for nine of the next 11 months, the economy dug a deeper trough, with spending at its lowest levels in recent years.

In all, spending during the fiscal 2011 year between July 2010 and June 2011 totaled just over $1.5 billion. That was $237 million — 13 percent — lower than the county’s fiscal 2007 peak.

But for much of the economy, the damage was likely even worse, according to Basu.

“Much of what we consume, we need simply to survive,” Basu said. “So in discretionary spending categories, the decline was far greater than 13 percent.”

He said that observation should be “no surprise. Many retailers faded into oblivion during this period including Comp USA, Borders and many others.”

For certain, “13 percent is quite dramatic, actually, and particularly when one considers inflationary forces,” he said.

Neither Maryland nor the newspaper study adjusted the sales tax-based data for inflationary increases in how much things cost.

“Inflation has been running at 2 to 3 percent a year for many of these years,” Basu said.

So, for example, “if what I buy in 2007 cost me $100 a month. And then, four years later in 2011, I only have $87 (a month) to spend — but everything I was buying before costs more, I’m now not buying just 13 percent less. I might be buying 20 percent less.

“Milk is more expensive, gas is more expensive, cotton shirts are more expensive. So my actual unit expenses” have increased, he said.

Put another way, “if the price of a cotton shirt went from $1 in 2007 to $2 in 2011 — which is a crazy thought — I could buy 100 shirts in 2007” with $100, Basu said. But with just $87 to spend in 2011, “I can only buy 43 1/2 shirts,” he said.

The net effect of lower spending and higher prices squeezes the economy and slows the recovery, he said.

Spending levels vary

Regardless of whether times are tough economically, local consumers spend the single-largest chunk of their money at what the state comptroller’s office calls the “general merchandise” group of businesses.

Those businesses include department stores, variety stores, drugstores, jewelry shops, sporting goods and toy stores, and discount stores.

In all, sales at those outlets totaled $432 million of the $1.5 billion in taxable purchases in the county during fiscal 2011, according toTheHerald-Mail’s estimates. Purchases at the discount stores alone accounted for $231 million of the receipts.

Maryland doesn’t identify any of the businesses or single out any store’s sales.

But overall in the general merchandise category, the spending levels have stayed fairly steady through the recession, compared to some other sectors of the economy.

From fiscal 2006 through fiscal 2010, total spending at such businesses ranged from a low of $433 million in 2008, to a high of $456 million in 2009. It slid to $452 million in 2010 before dropping to $432 million in 2011.

The “food and beverage group” attracts the second-largest share of local residents’ spending.

In recent years, total spending in that category — which includes such businesses as groceries, restaurants, liquor stores, taverns and nightclubs — has ranged from fiscal 2008’s low of $337 million to fiscal 2010’s high of $381 million. The annual total reached just $372 million in fiscal 2011.

Likewise, the annual swings were more muted in the “apparel group,” ranging from a high of $105 million in fiscal 2007 to a low of $98 million in fiscal 2011.

But the recession was clearly harder on stores selling clothing for men and boys, chopping purchases there from $8 million in fiscal 2007 to less than $4 million by fiscal 2011.

In the economy’s other main categories:

• Spending at automotive-related businesses increased to $114 million in fiscal 2011, compared to $108 million in fiscal 2010.
• Spending in the “furniture, fixtures and appliances group” fell to $103 million in fiscal 2011, compared to $109 million in fiscal 2010. The decline was much larger when compared to the $166 million in sales at such businesses here in fiscal 2007.
• Spending in the “building and contractors group” increased to $162 million in fiscal 2011, compared to $154 million in sales the previous year. In the pre-recessionary days of fiscal 2006, however, spending at such local businesses totaled $253 million.