Signs of economic recovery

Signs of economic recovery

2012 sales tax revenue up, real estate sales improve

When Texas Comptroller Susan Combs announced July 11 that state sales tax revenue in June was $1.98 billion, up 15.2 percent compared to June 2011, it was good news for a state economy that continues to show signs of strength.

“Sales tax revenue has increased for 27 consecutive months in Texas,” said Combs. “Strong business spending in industries such as manufacturing and oil and natural gas boosted the latest sales tax collections. Revenue from consumer spending in the retail trade and restaurant sectors also did well.”

In Southeast Texas, reported sales tax revenues also rose, in some cases dramatically, as forecasters sifted the fiscal tealeaves to detect trends that might suggest an even more robust economic recovery. But the June numbers were cause for at least cautious celebration.
In Beaumont, the nearly $2.8 million sales tax payment for June represented a 16 percent increase over the same month a year ago.

Nederland recorded an even more impressive 51 percent increase, with Groves registering a solid 24 percent improvement. Port Arthur was off the charts with the nearly $1.6 million sales tax payment representing a 78 percent increase, although that figure should be viewed with caution as the increase could be the result of an auditing recalculation. The Comptroller’s Office does not separate sales tax revenues by business sector, making definitive analysis difficult.

Overall, total sales tax revenue for Jefferson County in June was up 33 percent over the same month last year. For 2012 to date, collections are up 14.8 percent over 2011 – a solid upward trend that suggests the June increase is not an aberration.

Next door in Orange County, there was more good news. Bridge City enjoyed a 29 percent sales tax increase over June 2011, with the city of Orange posting a welcome 24 percent surge. Vidor continued the upward trend with a 19 percent increase while Rose City enjoyed a 71 percent jump, although revenues totaled only $18,320, with the smaller totals making the numbers more volatile. Total sales tax revenue for Orange County in June was up nearly 20 percent over the same month last year. For 2012 to date, collections are up 2.46 percent over 2011, but the trend is positive.

In Hardin County, the gains were generally more modest but continued the upward trend seen in adjacent counties. One exception was Kountze, which showed a nearly 41 percent gain on revenues of $30,799; another was Sour Lake with a 36 percent increase on revenues of $57,982. Lumberton was steady with a 3.26 percent increase as was Silsbee with 4.99 percent. Overall, Hardin County recorded a 8.87 increase in June, with the 2012 number increasing 5.74 percent over 2011.

Putting these numbers in perspective requires some insight from area practitioners and analysts. Ann Galassi is economic development manager for the Sabine River Authority. As a board member of the Southeast Texas Economic Development Foundation, she was asked if she believes these positive signs are indicative of an overall economic recovery in Southeast Texas.

“My gut feeling is yes, but I don’t think we’re out of it yet,” said Galassi. “I’m very cautious about saying these are good signs — they are positive signs, but if you look nationally we’re showing a lot more positive signs than elsewhere because our job growth is larger than in other places.”

Despite the caution displayed by many in her profession, Galassi does see some cause for optimism.

“I think it helps, but I think the hard numbers, the reality – there are a lot of businesses that have struggled through all this and have done really well and there are those that haven’t,” she said. “It helps that industry – the manufacturers and the petrochemicals and refineries – have put investments in this area and believe this is where they need to be doing business.”

Dr. M. Ray Perryman, president and CEO of The Perryman Group, is an economist whose column appears each month in the Business Journal. He sees the surge in sales tax revenue as a positive harbinger for the economy.

“The gains have all the appearances of some staying power, and we are seeing them in many parts of the state,” said Perryman. “One thing a lot of people don’t realize is that sales tax also includes a lot of business-to-business transactions, which has really picked up in all of the areas that have anything to do with drilling, refining and petrochemicals.”

Real estate recovery

Other hopeful signs of economic recovery can be found in the real estate sector. Dr. Mark Dotzour, chief economist of the Real Estate Center at Texas A&M University, recently cited evidence of housing market strength, asserting the residential real estate market in Texas has appeared to have formed a bottom and is beginning to recover. Total sales of nearly $40 billion were reported to the Real Estate Center in 2011, very similar to 2004 before sales spurted in 2005-07 because of greatly relaxed underwriting standards. Dotzour said, “It appears to me that sales volume has stabilized around $40 billion for the past three years. Early results indicate that 2012 will show a substantial increase.”

The inventory of homes for sale is another indication of stabilization in the residential market. If there is an excessive amount of homes for sale, the risk of price declines is higher. When inventory gets lower, prices start to rise.

Dotzour cautions that comparing current home sales to peak-year figures sparked by what turned out to be disastrous lending policies are not really valid as an indicator of housing market reality.

“In 1999, we thought 184,054 units sold was so hot it was off the charts; in 2011, we thought 203,637 units sold was a difficult market,” he said. “Don’t compare your business activity with what happened in 2006 and 2007. Those years were an aberration. That kind of sales volume should have never happened. We have learned our lesson, and from now on you actually have to have a job and some income to buy a house. That’s called ‘a normal market.’”

In March, the Beaumont market saw a decline year-over-year in new home sales, a decline following a rise in February 2012. A total of 202 new homes were sold during the 12 months that ended in March, down from 205 for the year that ended in February. New home sales represented 2.9 percent of overall housing sales, less than the 4.2 percent of sales a year earlier. For new and existing homes, sales gained year-over-year in March after also increasing in February year-over-year.

For existing homes, the sales numbers were more robust. In the first five months of 2012, total home sales in Beaumont increased each month, rising from 110 homes sold in January to 197 sold in May, the last month for which statistics were available at press time. In May, the average price of those homes was $153,100 with a median price of $134,100.

Dr. Perryman has also seen the Real Estate Center at Texas A&M’s forecast “substantial” gains in real estate sales for 2012 over 2011 and shares their optimism.

“The increase in home sales is generally being seen in multiple listing data around the state. The situation is still a bit cautious due to the lending environment but should be sustainable,” he said.

As this apparent economic recovery takes additional tentative steps forward, both sales tax revenues and real estate sales will be valuable barometers to gauge how extensive the resurgence will be.