Judged by Taxable Retail Sales, 2020 was not a Bad Year for the Greater Tri Cities

By Dr. Patrick Jones

Pandemic year 2020 severely tested the economy of the greater Tri Cities. In response, it showed resilience, at least as measured by taxable sales activity. Trends indicator 3.2.1, Annual Taxable Retail Sales, registered a year-over-year increase of over $235 million. In percentage terms, that amounted to 3.7%.  Growth was certainly not as robust as the annualized rate of 6.3% during the prior decade, but a far cry from the outlook at the start of the pandemic.

As this indicator shows, the results bested those of the entire state, which suffered a year-over-year loss of -1.5%. Among the metro areas of eastern Washington, the two counties trailed only Walla Walla.

In Washington state, the level of taxable retail sales gives a good idea of overall economic activity, due to the broad coverage of the tax. Activities tracked and taxed go far beyond what one typically thinks of retail sales. In the parlance of the Washington Department of Revenue (DOR), that category is Retail Trade. In the greater Tri Cities over the past two years, Retail Trade has made up only about half of all taxable retail sales. Other important sectors contributing to the total are:  construction, hospitality (accommodation plus food and drink) and wholesale trade.

Of course, key economic sectors in our state do not face the sales tax. They include most food, prescription drugs, many services, especially healthcare services.

Data on annual taxable retail sales carry a timeliness advantage over the most complete measures of a local economy:  personal income and metro GDP. These federal statistics are issued 4-5 months after the DOR publishes its annual sales figures. Further, one can track the progress of the local economy within the year by viewing this indicator’s quarterly analog, Trend 3.2.2.

The quarterly series, in fact, allows some insights into the generally good results of 2020. We see that the first quarter experienced large jump, nearly 14%, over Q1 of 2019. In the subsequent quarter, the worst-performing three months in the U.S. since the Great Depression, economic activity didn’t fall nearly as much as it did state-wide. Year-over-year, taxable retail sales here dropped by -4.2%. Compared to the Great Recession of 2008 and 2009, this decline was about half as steep. And it was far less than the plunge in state-wide taxable retail sales activity of -12.6%.

In the third quarter of last year, the local economy continued to out-perform that state by over four percentage points. It was only in the final quarter of 2020 that taxable retail sales here did not grow faster than those of the state. Still, the rate remained positive.

How did both sides of the Columbia fare in 2020? A glance at the county views in indicator 3.2.1 reveals that Franklin County did much better than Benton County, or 10.9% increase versus a 0.9% rise. Not surprisingly, then, the city views of indicator  3.2.1 put Pasco at the top, with year-over-year growth of 9.9%.

Not shown in this Trends indicator is a sectoral breakdown. As we might expect, there were winners and losers in the pandemic economy of the greater Tri Cities. It won’t surprise most to learn that the sector taking the hardest hit was hospitality. Its taxable sales plummeted by nearly $128 million in 2020, or a 21% decrease.

In percentage terms, the sector that endured the strongest blow consisted of arts, entertainment & recreation. Its taxable sales plunged by 50%, compared to 2019. Rounding out the roster of challenged local sectors were apparel & accessories and information. (The latter consists of broadcasters, print publishers, telecom, ISPs and software publishers.) Year-over-year losses in these corners of the local economy were 19% and 13%, respectively.

Yet, sectors with year-over-year increases were just as numerous, and in the end their strength contributed to the overall gain in sales in the two counties. Leading the pack, and ranked by dollar volume, were stores selling:  building materials & garden equipment, with a 25% jump; motor vehicles & parts, with a 5% increase; and consumer electronics, with a 23% rise. The construction sector also contributed to the overall gain, with a 4% increase.

In a typical year over the past decade, nearly all sectors experienced increases that varied by degree. Pandemic year 2020 obviously upset that pattern, as public health measures called for limiting commercial activity where close, face-to-face contact was deemed dangerous.

Where might this year land? Officially, we don’t yet have the results for the first quarter from DOR. We do know, however, that the state has experienced strongly positive increases in taxable retail sales, ranging from 6.5% in February to 48.2% in April. While local taxable retail sales and those of the entire state don’t show a high correlation over the past decade, they do move together in a positive way.

Assuming that the year-over-year trend statewide stays positive, it’s reasonable to assume that the Tri Cities will also experience another year of gains. That is, unless the delta variant sidelines parts of the economy once again.