The Oil Bust Bites.
Retail sales in Texas were a boom machine after March 2010, their low point during the Great Recession. It lasted over five years. Sales tax collections, reported by the Texas Comptroller of Public Accounts, jumped 46% from the first half of 2010 to the first half of 2015. Blinding growth for a mature market!
Given the size of the Texas economy, it helped prop up overall retail sales in the US.
But by mid-2015, the retail sales boom came to a screeching halt. In the second half, sharp year-over-year declines set in. And in December, over the crucial holiday period, retail sales sagged.
Sales tax collections aren’t an ideal gauge. Basic food products like flour, sugar, bread, milk, eggs, fruits, or vegetables are exempt. Taxes on motor vehicle sales and rentals are not included in this tally but are reported separately. The data is not seasonally adjusted, so it can only be compared to the same months in prior years. But it’s an unvarnished approximation of the movements of retail sales.
Sales tax collections lag sales one month. So collections reported for January were for sales in December.
June and August 2015 were the first months since March 2010 when sales tax collections actually declined year over year. They were considered outliers. Then in October, sales tax collections plunged 5.4% year-over-year. In November, collections fell 3.3%, in December 1.0%, and in January 3.9%.
Since sales tax collections lag sales one month, that 3.9% drop for January was for December sales. What a sour holiday period!
This chart by “David in Texas” shows how the boom in sales tax collections since the Great Recession began to sag last year. I circled the months of year-over-year declines (yellow = 2014, green = 2015, dark blue = 2016):
The chart also shows just how phenomenal the retail sales boom in Texas was. It coincided with the oil boom, when West Texas Intermediate traded above $100 a barrel for part of the time, when fracking became the new miracle activity that brought billions of dollars from banks and investors from around the world into the state every year.
This money was drilled into the ground. It was used to build office towers for the booming energy sector and everything that came along with it, such as law firms and engineering firms. It was used to build apartment towers. It drove technology forward and funded innovation. It bought equipment. It fed manufacturers that supplied the oil industry. It paid for the construction of hotels and temporary housing for oil workers even in small towns….
And along the way, the money paid for wages, salaries, bonuses, and royalties, and folks went out and spent this money.
The state government was ecstatic with this influx of cash. Retailers were even more ecstatic and opened new stores. Mall owners were happy. Banks bathed in bliss and extended huge loans to drive this miracle to the next level. Consumers were expressing their happiness by feeding retail profits and state coffers alike.
Retail sales recycled the money and contributed to the strong Texas economy. Everything went right – until the price of oil plunged.
Now oil and gas companies are going bankrupt. Manufacturers and service providers that supply the oil and gas industry are sinking into the mire. People are getting laid off, from retail workers to high-level engineers in the energy sector. And sagging retail sales indicate that these folks, and others around them, are closing their wallet or that they’ve maxed out their credit cards after losing their jobs.
Tax collections on motor vehicle sales and rentals had experienced an even greater boom. From the first half of 2010 to the first half of 2015, they’d soared 65%! Car dealers were on cloud nine! But that boom too is now imploding, with tax collections in January for December sales dropping 3.8% year over year!
And commercial real estate is getting hit. Debt is everything in the sector. So this is going to be a problem for banks. The entire math is based on high rental rates and low vacancy rates. But in Houston, rental rates are falling and vacancy rates are skyrocketing. Sublease space has spiked 69% and continues “to sit on the market,” even while new towers are being completed. “See-through buildings” are re-appearing — that infamous phenomenon of vacant and transparent buildings dotting Houston’s business district during the last oil bust. So watch the banks. Read… Office Market in Houston Melts Down
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Wolf its like a roller coaster reading your articles. Its really too bad the FED and Government did not do the right thing in 2008. By now we would have been in a recovery. Fortunately I took the last few years to prepare for the final bust, delayed but not avoided. This time there is no rabbit in the FEDs hat. I supsect this is going to get alot uglier and much faster.
Michael –
The “rabbit in the hat” is going to be real negative rates, in conjunction with a ban on cash. Since cash (physical notes & coin) are an antithetic problem for the bankers who want to push a negative rate policy.
Hand in glove with this negative rate push, is the fact of gaining more control over the general populace. Without physical cash the powers that should not be, effectively close the exit door to the system. You be either in, or on the outside starving and without shelter.
Sales taxes. When so much money is sucked out of the real economy and handed over to governments – who, led by their social agendas, then misallocate it – something somewhere will implode.
What you taking bout Willis ? What the frack does Texas state government’s tax revenue or putative “social agenda” have to do with the oil industry boom-and-bust cycle?
But remember, Texas doesn’t have state income taxes, unlike most other states.
they might soon.
does seem that when the driver drops by 2/3 or so, something else will give way.
also known as: necessity.
Having lived, worked, and gone to school in Texas, and having many friends there, my gut feeling is that trying to push through income taxes would be, at a minimum, political suicide.
There are other taxes in Texas that add up after a while, including property taxes.
“..their social agendas.” Hmmm, the largest part of my property tax bill goes for building roads, upon which the gasoline-consuming automobiles drive. And, if you want to build a new house, there it is again!! Roads! Then schools, then the water district….
The newspaper editors of (approx) 1920 (when there was one car for every seventeen Americans) wrote scathing opinions about building public roads. They said the practice would bankrupt the country.
I guess they were a hundred years too early.
I don’t know where you are but in Texas, most of property taxes are allocated to schools. Gas tax is where funding for roads comes from.
Solution:
Cash for Clunker Oil Derricks.
Cash for Clunker Off-Shore Oil Platforms
Cash for Clunker Oil Tankers.
There will be a revolt in this country if they try to ban cash. America has too many guns.
There will be a revolt soon enough if local/state governments attempt to raise taxes into this obvious coming slump.
Only the federal government can stimulate since it can print money and issue debt. Even if Congress won’t act, the President will use emergency powers.
But when it gets to that point, it’s over anyway.
I have read/heard this meme of “America has too many guns” one too many times.
No revolt will EVER happen. All those guns did do jack sxxt to preserve our civil liberties. In effect the Bill of Rights it’s a quaint old notion to teach to elementary school children but beyond that it’s plain old toilet paper for TPTB.
So, rest assured that if the Deep State decides tomorrow morning to ban cash nothing ain’t gonna happen.
They won’t do it that way though, it starts by little increments, like douche bag Larry Summers clamoring for the elimination of the $ 100.- bill and so many other spokespersons to the rulers of this country conditioning the populace for what’s coming.
Forget guns. That’s a battle you can’t win with a gubmint that will outgun the serfs 100 to 1.
Outlookingin,
Sorry cash is legal tender its a bankers wet dream but NOT going to happen.
Negative interest rates are an attempt to get banks to loan money for which there is no demand. They do not want bank runs.
Frankly I have been hedging by removing cash slowly from the system for the last 6 years. I have added to that with precious metals. These are protected by big dogs and big guns.
I say to the bankers, screw you bring it on.
In this sophisticated, do-anything age, how would you convince a total stranger that your “precious metals” that you trade for food, or fuel, or bullets, is the real thing and not altered? If there is total social disorder, where only “precious metals” are trusted, what are you going to do if the gold bar or Krugerrand someone gives you for a pickup full of groceries, turns out to be 50% lead? And what are you going to do when you give someone “old silver dollars”, and they do a quick sleight of hand, substitute a phony silver dollar, then show you that “It’s a fake!!!” and pulls a gun, tells you to hit the road before he shoots you?? “You crook!!”
People don’t think through this “safe haven of precious metals” as it applies in the 21st Century. It doesn’t. Technology and distrust has ruined any non-civilization value of precious metals.
There is an app for using smart phones to send an audible signal to a precious metal coin, and get a resonant response that will tell if it is authentic. Bars need a scale to weigh and water displacement measures to determine density. Gold is 19.32 grams per cubic centimeter @ STP (standard temperature and barometric pressure).
I hope to heck that it never gets to this point, but the national debt will be twice the GDP in not too long, and the world economy has flatlined. There is no way that the US economy can grow enough to keep up with our nation’s debt without something drastic.
As Charles de Montesquieu warned, “The tyranny of a prince (substitute prince for the current USA political state) in an oligarchy is not so dangerous to the public welfare as the apathy of a citizen in a democracy.”
Texans like to think of themselves as financially prudent, unlike “socialist” Blue States. Texas is the only Red State that does not receive more money from Washington than it sends. All the other Red states are on welfare, so too speak. Many of the Blue states are supporting them by sending more tax dollars to Washington than they get back.
Texas has avoided this by literally pumping money out of the ground. This has benefited the rest of the state economy. Now that the flow of this free money has tapered off, Texas will join the rest of the Red States with its hand out to Washington.
Interestingly a quick research on your statements and facts indicate nearly everything you said is wrong. Please insure your facts are correct before making public posts. We have enough politicians on both sides not fact checking their statements.
Here is an interesting map from the Tax Foundation:
http://taxfoundation.org/blog/which-states-rely-most-federal-aid
The linked website provides additional information on the blue vs. red states “dependency” on the Federal Government. Whether the map takes into account all transfers such as Medicaid and Medicare would have to be investigated.
https://wallethub.com/edu/states-most-least-dependent-on-the-federal-government/2700/
Thanks. Good map. People should look at it. It’s nice to dispel the fog from to time – though some people might see what they don’t WANT to see.
As always, the way you peel away the layers to expose the rot of our economic onion is intriguing.
But I recall what you’ve written when I read what you write. So my question would be, how much of the decline in Texas sales tax collection corresponds with the accelerating growth of online purchases, where avoiding state sales tax is part of the appeal?
Yes, we always wonder how online sales muck up retail numbers.
In this case: online sales have been common (and growing) in Texas since Adam and Eve, so to speak. But it’s only over the past few months that sales tax collections have been falling. So the decline in tax collections is a new phenomenon unrelated to any growth of “untaxed” from-out-of-state online sales.
Three points re the comments above:
1. Most large online retailers (Amazon, etc.) charge sales tax for sales in Texas and have done so for at least the past 2-3 years. If anything, tax revenues from online sales would be going UP as smaller retailers also charge sales tax on sales to Texans.
2. Voting for (or even proposing) a personal income tax would be political suicide for a Texas legislator. We didn’t even pass one in the late 1980s, when the budget problems were much worse than they are today. If the D party ever comes back to life in Texas, this could change, but still seems rather unlikely.
3. Sales taxes (general + motor vehicle) account for 2/3 of the state’s tax revenues. I haven’t researched other states, but this is probably a higher percentage than most. By contrast, direct oil and gas taxes account for less than 6% of the state’s tax revenues – less in fact than the 20 cents/gallon motor fuel tax (which hasn’t been raised since 1991).
Thanks. I didn’t realize sales tax collections played such a dominant role in the state budget.
No doubt some of the retail numbers are impacted by online sales. But one thing about oil patch jobs – they are high paying. And when so many are lost during a bust, Texas feels the pain. Not just from those losing jobs, but from those who have seen colleagues carrying out those little boxes filed with the detritus from their cubicles. The folks left at their desks tighten up on their spending as well, knowing the axman may be coming for them sooner or later. And it ultimately slams the economy at large. Been there. Done that.
Its okay, according to the market prognosticators, because fracking loans are asset-backed.
Hmmm, gee whiz, Mr. Wilson, weren’t subprime house loans asset-backed?