Despite summer's heat, economy is turning chilly

It may be the first week of summer, but the chilly winds buffeting the national economy are provoking shivers in Cape Girardeau.

Since I started writing this column, I've been told repeatedly and by a variety of sources that Cape Girardeau has built-in insulation from national economic trends. Our big employers -- the two major hospitals and accompanying medical community, Southeast Missouri State University and Procter & Gamble, to name a few -- provide a base that puts a brake on downturns.

But when something dramatic changes, even the best insulation can be penetrated. And the losers right now are retailers.

Sales tax receipts for the three biggest local jurisdictions -- Cape Girar?deau, Jackson and Cape Girardeau County -- are all running behind collections in 2007. Jackson is hardest hit, with general revenue sales tax collections for the first six months of 2008 falling 2.3 percent.

The county's receipts are down by 1.3 percent and Cape Girardeau sales tax collections are off by 0.3 percent.

Last year at this time, Cape Girardeau County tax collections were up 6 percent for the first half of the year; Jackson enjoyed annual growth of more than 6 percent each of the past two years.

Sales taxes are a good way to take the temperature of the local economy. They don't tell the whole picture, but enough key sectors of business activity are included to give a clear diagnosis.

There are plenty of things people buy that aren't subject to sales tax. Gasoline, labor for auto repairs and professional services like legal work or medical care are among the top examples. And while state lawmakers are always tinkering with tax exemptions, there have been no major exclusions from local taxation in the past year that would explain the lost revenue.

The infection in the economy is high fuel costs. I know that observation doesn't prove that I am a journalistic Sherlock Holmes. Even Dr. Watson would be astute enough to see it.

But that doesn't make it less true. When I moved to Cape Girardeau in July 2005, the pump price at discount stations was $1.99 a gallon. Fuel was below $2 in this area as recently as the fall of 2006. So with gasoline costing 85 percent more than it did 18 months ago, something had to give, and that something was other purchases.

The declining revenue is even more striking when inflation is factored in. According to the Bureau of Labor Statistics, prices nationally are up 4.2 percent since May 2007 and in the Midwest the increase has been slightly less at 4 percent. And inflation has accelerated in recent months. The annualized inflation rate for May was just under 10 percent; in the Midwest, prices rose at an annual rate of nearly 11 percent in May.

Under normal circumstances, income growth added to inflation will produce revenue increases from sales that are as larger or larger than either factor. When revenue falls as prices rise, that is a sure sign of distress among retailers.

The evidence from Cape Girardeau County confirms trends seen in data from across Southeast Missouri, said Dr. Bruce Domazlicky, a Southeast professor who watches the region closely.

"I think it is pretty clear and the labor data is starting to show it that there is a slowing of the economy in the area and that is going to cut into spending," he said.

Data on income growth shows a slackening, Domazlicky said. From a steady growth rate of 5.5 to 6 percent, he said, the growth has slowed to about 4 percent regionally.

"When the economy slows, the first place people cut back are discretionary items," he said. "They put off buying a new car, or furniture or appliances. Instead of a new refrigerator, they fix the old one."

Business owners aren't in distress yet, said John Mehner, president and chief executive officer of the Cape Girardeau Area Chamber of Commerce. Tax receipts from restaurants and hotels continue to show strong growth, he said, but other retailers are reporting the slowdown.

"There is no doubt people are feeling a hit in their disposable income," Mehner said.

The areas where business owners are saying they are doing well include electronics, restaurants, and computer software and services, Mehner said. "General retail has been saying it is soft."

Nationally, the prescription for the retail sales slump included those stimulus checks from Uncle Sam. The sales tax receipts for local governments take several weeks to move from the cash register to the government bank account.

Stimulus checks totaling $50 billion were issued in May and the money will continue to flow until mid-July. The U.S. Commerce Department last week reported that retail sales nationally were up 1 percent in May compared to April and up 2.5 percent over May 2007. The figures are seasonally adjusted, the Commerce Department said in its news release, but they are not adjusted for inflation.

In a few months, we will know whether the prescription cured the disease. Meanwhile, I'm going to the closet for a sweater.

Rudi Keller is the business editor for the Southeast Missourian. Contact him at rkeller@semissourian.com or cal 335-6611, extension 126.