It’s not just the oil bust.
Sales tax collections in Texas in November fell 2.7% compared to November 2015 and are down 5.9% year-to-date, according to the Texas Comptroller of Public Accounts. And they’re down 2.2% from collections in November 2014, and down 0.14% year-to-date compared to the same period in 2014.
This is the first time since the depth of the Financial Crisis that year-to-date collections are lower than they’d been a year earlier, and even two years earlier.
What was at first expected to be just a blip in the data when it appeared in June 2015 – the first year-over-year decline in monthly sales tax collections since the Financial Crisis – has turned into the end of the great Texas retail boom.
This chart shows sales tax collections for 2014 (green), 2015 (blue), and 2016 (red). The sales tax data, researched and complied by “David in Texas,” is not seasonally adjusted, hence the strong fluctuations. Sales tax collections lag sales by one month; hence, collections reported in November were for sales in October:
On a per-capita basis, given the growth of the Texas population (up 8% since 2010), it looks even worse: year-to-date per-capita sales tax collections fell nearly 2% from two years ago.
Sales tax collections aren’t an ideal gauge of retail sales. Many food products are exempt. Taxes on motor vehicle sales and rentals are reported separately. The data is not seasonally adjusted, so it can only be compared to the same months in prior years. But online sales are taxed in Texas and are included in this tally. So tax collections are an unvarnished approximation for a large part of retail sales.
Sales tax collections boomed for five years, starting in March 2010, soaring 46% through the first half of 2015! Given the size of the Texas economy, it helped prop up overall US retail sales. But by May 2015, ten months into the oil bust, retail sales began to take a hit as layoffs and uncertainty were spreading through the Texas economy.
This chart shows sales tax collections from 2008. Note the decline during the Great Recession. By comparison, the current decline looks relatively mild, but it’s starting to drag on:
The Texas economy isn’t monolithic. People in North Texas (the Dallas area), in Austin, and some other places are scratching their heads; the economy where they are is doing well. So retail sales may not be all that strong either, but exuberance still reigns in the housing market. Big companies are moving operations into the Dallas area, and total employment in October was up 3.5% year-over-year, to 3.59 million, though that was down a smidgen from September. There aren’t many dark clouds in sight – as long as the housing euphoria holds up.
Then there’s the Houston metro where the dark clouds have form a storm (below data via Houston.org, and the Bureau of Labor Statistics). The oil boom years ago triggered an enormous office construction boom in Houston. When the oil boom turned to bust, office leasing fell apart, sublease space soared off the chart, and the construction sector, with some lag time, entered collapse mode.
Commercial buildings: In the Houston metro in October, contracts for nonresidential buildings plunged 34% year-over-year and are down 13% year-to-date. Permits for new nonresidential buildings plummeted 58% in October year-over-year and are down 32.8% year-to-date.
Residential buildings: In October, contracts for residential buildings rose 20% from a year ago, but year-to-date are still down 14.5%. Permits for new residential buildings collapsed 30.2% in October and 31.9% year-to-date.
However, permits for additions and alterations, nonresidential and residential, are rising. Now’s the time to fix up that old office building or house.
Home sales are hanging on, edging up 0.7% in October and 0.6% year-to-date. The median price still rose 6.3%, even as active listings jumped 9%.
Goods-producing sector sheds jobs, government on hiring binge: Total nonfarm payroll employment for the Houston-Sugar Land-Baytown area edged up 0.4% in October year-over-year, to 3.023 million, and jobs in the service sector rose 1.6% year-over-year. But jobs in the goods producing sector (oil & gas, natural resources, construction, and manufacturing) dropped by 4.4%.
The lucky sectors: Government jobs (the second largest category after “Trade, Transportation, and Utilities”) rose 2.4% to 398,900, a new record. Education and health services gained 3.6% to 389,400. And Leisure and Hospitality jumped 4.4% to 319,200.
The hardest hit industries:
- Mining and logging jobs, which are mostly oil & gas, fell 8.9% in October year-over-year, to 86,400, down 23% from their peak in December 2014. Many of these jobs were highly paid engineering jobs.
- Construction jobs dropped 4.3% from October last year which had been the peak, to 217,900. That’s just the beginning. Workers are still completing buildings started during the boom. But with contracts and permits plunging, the future for these jobs is getting somber.
- Manufacturing jobs, often tied to the oil & gas sector, dropped 2.8% year-over-year, to 232,100, and are down 11.5% from their peak in December 2014.
- Information Technology jobs, many of them tied to the oil & gas sector, dropped 3.8% year-over-year to 30,500, and are down 9.5% from their peak in December 2013.
- Professional and Business services jobs fell 1.1% year-over-year to 466,200, and are down 1.9% from December 2014.
Foreign trade gets hit. Exports measured in dollars plunged 14.1% in September year-over-year and 19.2% over the first nine months. Imports dropped 4.0% in September and 25% over the first nine months.
The transportation sector feels the pain: Port of Houston shipments in short tons rose 19% in October but are down 1.6% year-to-date. Air passengers at Houston airports in October were down 3.7% from a year ago and 0.6% year-to-date. Air freight was down 0.4% for the month and 9.2% year-to-date.
And consumers are closing their wallets. Retail sales fell 3.2% in October and also 3.2% year-to-date. The major category: New vehicle sales (measured in number of vehicles) got totally crushed, down 17% in October and 22% year-to-date, with new car sales down 30% year-to-date, and even truck and SUV sales down 17% year-to-date.
Houston is big, but it’s in a big State, and its weakness cannot alone explain the decline in sales tax collections across Texas that started in May 2015. Whatever the reasons, consumers across Texas have begun to curtail their spending.
But a relatively new phenomenon is now in full bloom: the financialization of rents. Read… Foreclosure Crisis Comes Full Circle? Biggest Buy-to-Rent Landlord Plans IPO (Despite Red Ink Everywhere)
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