by Greg Grootendorst, Chief Economist and Katherine Rainone, Regional Economist
Try as they might, economists have a tough time predicting the future. When COVID hit the US economy in March
of 2020, a wave of layoffs (some temporary, some permanent) followed as business as usual ceased to exist. Across
the region (and the country and globe), every major industry was impacted differently. One of the most interesting
to watch over the past two years has been the retail industry – which has experienced a rapid recovery in ways that
would have been very difficult to predict in March 2020.
During typical recessions, retail sales decline and employment in the retail industry declines along with it – this is what
the region experienced during the recessions in recent history in the early 90’s, 00’s, and the Great Recession. The
pandemic associated recession of 2020 proved quite different. While employment in the retail industry has been
declining each year since 2017, there was a significant decline of over 5% between 2019 and 2020 – consistent with
businesses closing and economic uncertainty at the onset of the pandemic. What has been atypical about this
recession and associated recovery is that retail sales only dipped for a few short months in early 2020, and made
an extremely strong rebound (see the following page of this report for monthly retail sales data). From 2020 to 2021,
inflation-adjusted retail sales in Hampton Roads increased by over 9%, after staying roughly stagnant for the previous six
years. This came in conjunction with a significant increase of over 6% in personal incomes from 2019 and 2020 (the most
recent year data is available for currently) – likely due to a combination of federal stimulus and decreased opportunity
to spend on services like travel. As people spent more time at home and had more money in their pockets, they spent
more money on goods. These two datapoints are depicted in the chart below.
The pandemic isn’t the only cause for increased retail sales as of late. In June of 2018, the Supreme Court of the United
States ruled on South Dakota v. Wayfair, Inc., changing the way sales tax is collected in the country. Under the old rule,
if an out-of-state seller lacked a physical presence in a state, that state could not require it to collect sales tax from the
buyer. After the Wayfair decision, a state may require an out-of-state seller—even one with no physical presence in
that state—to collect sales tax, as long as the state can demonstrate a connection (like volume of in-state sales). This
ruling made it easier for states to collect sales tax from out-of-state sellers, partially explaining an increase in sales tax
collections alongside declining retail employment in Hampton Roads in the past few years.
Hampton Roads is not the only metro area experiencing declining retail employment - of the 39 similarly sized metro
areas in the US, 30 have not yet recovered to 2019 retail employment levels. Hampton Roads sits in the middle of the
metro areas that have not regained retail employees, and at number 22 overall, with 2021 retail employment levels
sitting at 2.5% below those in 2019. Seattle comes in at number one, having experienced a nearly 5% increase in retail
employment in 2021 compared to 2019, while San Jose brings up the rear of the group with levels over 10% below
where they were in 2019.
To view June's full economic monthly report, click HERE.
Annualized Growth in GDP
Gross Domestic Product combines consumption, investment, net exports, and government spending to determine the size and general health of the economy. Real GDP increased 2.1% in Q4 2019 (GDP also grew by 2.1% in Q3 2019). The growth is driven in part by consumer spending, government spending, housing investment, and exports, while imports decreased. There was a decrease in inventory investment (-1.09%) as well as a reduction in business investment reflecting a decrease in structures and equipment.
Retail sales in Hampton Roads, as measured by the 1% local option sales tax, serve as an indicator for consumption in the region. Retail sales have bounced around, but after a surprisingly weak June, they continue to recover handily through to December (seasonally adjusted 3 month M.A.). Sales increased by 7.4% in December, making it Hampton Roads’ best December for total retail sales in recent years. Much of the recent growth in retail sales across the Commonwealth has been the result of increases in the number of online sales that are subject to tax.
New Car Sales
Car sales, as a durable good, may be put off until an individual’s economic prospects improve; thus, the number of new car sales indicates the level of confidence that households in Hampton Roads have in their financial future. Car sales have decreased and stabilized after an unusually strong September, hovering near the averages that have been observed over the past few years.
Hotel sales indicate the performance of the region’s tourism sector. In Q3 2019, accommodation sales decreased by 3.5%, settling at $220 billion for the quarter. This continues a pattern of slowing sales between second and third quarters in recent years, however, Q3 accommodation sales in 2019 increased 5.4% over Q3 2018. This shows accommodation sales are still trending upward from late-2013 lows.
Non-agricultural civilian employment figures are considered the best estimate of labor market activity by the National Bureau of Economic Research. According to data from the Bureau of Labor Statistics, Hampton Roads employment increased for the third month in a row since a recent high in June, to 796,600 positions in December of 2019. This figure represents a 1.05% growth from the same month in the previous year.
Employment Growth by Industry
As the job market grows or declines, there will be some industries whose experience does not resemble the regional trend. Several industries have seen significant decline year-over-year using BLS data, including Administrative & Support and Local government. The Construction and Leisure & Hospitality industries continue to see the largest increases in jobs when compared to the previous year, signs of strength due to their key role in the regional economy.
The unemployment rate is the percentage of the population actively seeking work but unable to obtain a position. Hampton Roads’ unemployment rate plateaued in December 2019 at 2.93%, the same rate it was in November. Comparatively, the national unemployment rate decreased again in December from the previous month to 3.5%, hovering at record lows.
The number of initial unemployment claims is a leading economic indicator reflecting those who are forced to leave work unexpectedly, thus revealing the strength of the job market with little lag time. Seasonal adjusted unemployment claims decreased in January 2020 to 2,438 claims, a decrease from December of 2019 but still above November’s recent low. This January number of claims represents a 17.6% decrease from the same month in 2018.
Permit data signals the level of construction employment and confidence regarding the future trajectory of the local economy. The level of new construction permitting for single family homes in December decreased to 352 permits, but when seasonally adjusted represents a slight increase relative to November. As the market continues to respond to the recently lowered federal interest rates, this indicator will be interesting to watch closely.
Home Price Index
The home price index measures the value of homes by evaluating changing price levels through repeated sales of properties. The index provides the highest quality data available on the trends in the real estate market. Hampton Roads’ home prices increased, yet again, by 4.2% over the previous year in Q3 2019, remaining below both the state and the nation. Regional housing values remain 4.3% below those seen during the peak of the housing boom.
Settled Home Sales
Settled home sales measure the level of transactions on the real estate market over time, and a healthy real estate market should have a consistent level of activity. The levels of existing home sales have been strong recently, with sales maintaining the same average level as during the housing boom in 2005. New construction sales in January saw a slight dip from December, continuing to represent roughly 11% of all sales.
Foreclosures have a significant impact on the real estate market and community, depressing home values on a neighborhood and regional level. Distressed homes’ share of total sales has particularly been shown to impact the sale price of existing homes. The foreclosure level is still elevated from the housing boom, but has been steadily declining, showing some of the lowest rates since 2009. Foreclosures constituted 4.2% of all home resales in December of 2019, down from a recent high of 8.1% in April of 2016 (12-month average).