The “Looking Glass” ponders economic and real estate trends through two distinct lenses: the optimist’s “glass half-full” and the pessimist’s “glass half-empty.”
Buzz: It wasn’t just homebuying that slowed this summer. Californians spent frugally in the third quarter.
Source: My trusty spreadsheet analyzed state sales tax collection by industry, looking particularly at consumer-centric activity in the third quarter. The California Department of Tax and Fee Administration’s tabulation of sales taxes payments is a rough indicator of consumer spending.
Debate: Homebuying binges and wild consumer spending is history.
Yes, the almost $19 billion in statewide sales tax collections for the three months ended in September equals 7%-a-year growth. However, that upswing is roughly one-third of the 20% spending pop during the summer of 2021 that was a speedy bounce back from coronavirus lockdowns of 2020.
Glass half-full
So, where is spending increasing?
Let’s start with gas stations, which collected $766 million in sales tax, up $120 million or 19% in a year vs. a rise of 55% in the previous 12 months. Rising pump prices fueled this spending growth, which certainly pinched buying power elsewhere in the economy.
And Californians still invested in their homes.
Merchants of building and garden goods collected $1.1 billion in taxes, up $17 million or 2% in a year vs. a rise of 8% in the previous 12 months. Firms doing household repairs or maintenance collected $235 million, up $27 million or 13% in a year vs. a rise of 25% the previous 12 months.
Online shopping built on its pandemic gains, taking in $1.3 billion in taxes, up $91 million or 8% in a year. That’s an improvement on a rise of 7% in the previous 12 months.
We still need to mingle so restaurants did well, collecting $2.2 billion – up $109 million or 5% in a year vs. a rise of 41% in the previous 12 months.
And the giant retailers — from department stores to warehouse merchants to discount chains – took in $1.3 billion, up $16 million or 1% in a year vs. a rise of 16% the previous 12 months. The low-cost players in this niche are faring well. Others suffer.
Glass half-empty
This is not simply about shrinking rates of sales growth. Consider what niches had declining tax collections as consumers switched spending habits while digesting inflation and various forms of economic unease.
Drug and beauty stores: $351 million collected, down 5% in a year vs. a rise of 10% in the previous 12 months. Diminished coronavirus fears lowered spending for health and cleansing products.
Furniture stores: $334 million – off 4% in a year vs. a rise of 9% in the previous 12 months. No need to redo one’s home as students go back to classrooms and workers go back to the office.
Food stores: $681 million – down 4% in a year vs. a rise of 4% in the previous 12 months. Inflation makes shoppers look for bargains and this niche lacks many of them.
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Stores selling sports, hobbies, music or books: $227 million – off 4% in a year vs. a rise of 3% in the previous 12 months. Little time for extracurricular activities.
Electronics/appliance stores: $375 million – down 2% in a year vs. a rise of 10% in the previous 12 months. There’s less need to make a home friendly for remote working or schooling.
Car dealers: $2.114 billion – off 2% in a year vs. a rise of 14% in the previous 12 months. Lack of product to sell is a huge challenge.
Clothing stores: $968 million – down 1% in a year vs. a rise of 42% in the previous 12 months. Stores have inventory, but it’s just the wrong stuff as demand shifts with a reopened economy. Merchants are discounting lots of misordered goods.
What’s ahead
Sales tax collections at consumer-centric industries totaled $12.6 billion this summer, roughly two-thirds of revenue. That spending was only a 2% annual growth rate vs. 20% in the summer of 2021.
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Shoppers are antsy. Home purchases fell to levels last seen just after the last bubble burst in the mid-2000s.
Today’s headaches include rising inflation and interest rates, falling stock and home prices, not to mention political craziness at home and abroad.
California consumer confidence, as measured by the Conference Board, has fallen in seven months in 2022 through October — the worst 10-month span since the mid-Great Recession 2009.
Is this simply a return to normalcy after pandemic gyrations? Or a more worrisome pattern?
Jonathan Lansner is business columnist for the Southern California News Group. He can be reached at jlansner@scng.com