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Maryland sales tax data indicates local economy is improving

Economist says newspaper's study shows 'we are probably more sure-footed now than we were two years ago and certainly, related to three or four years ago'

June 09, 2012|By ARNOLD S. PLATOU | arnoldp@herald-mail.com
By Chad Trovinger, Graphic Artist

Washington County’s economy is showing new strength, with household and business spending on the rise for nearly a year, according to a study byTheHerald-Mail.

But whether the momentum will continue amid rising economic uncertainties across the globe is a big question, a regional economist said last week.

“One might look at the (local spending) data and conclude we have turned the corner. That doesn’t mean we might not do another U-turn” back into the recession, said Anirban Basu, chairman and chief executive officer of Sage Policy Group Inc., a Baltimore economic and policy consulting firm.

“And there is some substantial probability that this economy is going to take another step backward because of all the uncertainty facing business decision-makers inside and outside of Washington County, Maryland,” Basu said.

Nonetheless, Basu said the newspaper’s study of Maryland sales tax data since before the recession does indicate “we are probably more sure-footed now than we were two years ago and certainly, related to three or four years ago.”

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The newspaper examined figures from the Maryland Comptroller of the Treasury, reporting how much sales tax was collected by businesses in the county. The study estimated the actual spending, using data back to 2004 and adjusting for Maryland’s increase in sales tax to 6 cents on the dollar, from 5 cents, beginning in 2008.

Key findings include:

  • Since last summer, the total purchase of sales taxed-products in the county has been higher every month than its corresponding month a year ago. For example, such spending here in June 2011 totaled $143.3 million — $300,000 more than the $143.0 million spent in June 2010;
  • The upward monthly trend has continued through March, the most recent month for which such figures are available. The 10 months of growth from June 2011 through March 2012 is by far the longest such local expansion since before late 2007, when experts say the recession began nationally.
  • Since last fall, the monthly spending increases have become even stronger, rising to levels not seen for that month in three or four years. 
  • In September 2011, for example, spending rose to $135 million — the highest level for that month since September 2007, when it reached $143 million. And in March 2012, purchases totaled $145 million — the most for a March since its $153 million crest in 2007 before the recession began.
  • Many kinds of businesses here are still struggling.
  • Shown against the spending peaks in 2006 and 2007, the county’s economy still has further to climb before it can match the heady days of spending before the recession.

But even that won’t account for the effects of inflation, which have raised the bar still higher for economic recovery, Basu said.

Prices have increased on many products during the recession, making things tougher for all to afford and tightening business profits, he said.



Financial fabric unravels

The economy has many threads.

In 2004 and 2005, as the nation’s financiers doled out easy credit, the demand for housing rose and prices soared. As they did, there was a rapid expansion of jobs, financial investments and consumer confidence.

By early 2007, as people realized the riskiness of subprime loans and adjustable mortgages, the financial fabric began to unravel.

Credit tightened, housing values plunged, and from the construction fields, to the furniture factories, to the bank offices, unemployment increased.

Suddenly, millions of new homeowners — owing more money than their homes were worth and unable to borrow any more — faced foreclosure and bankruptcy.

By examining sales tax data, the newspaper’s study can measure financial activity through much of the recession in many sectors of the local economy.

Those range from restaurants, to supermarkets, to taverns, to nightclubs, to clothing and shoe stores, to department and discount stores, to car repair shops, to furniture and appliance stores, and to purchases by plumbers, electricians, roofers and builders.

The state releases annual data, not month by month, for each of such business sectors. As a result, the newspaper’s study of each sector covered fiscal 2006 through 2011, but does not include data from the current fiscal 2012. That includes the period from July 2011 through March 2012, which is covered by the state’s more general monthly data.

The study doesn’t gauge spending in transactions ranging from real estate, to prescription medicine, to most grocery foods on which Maryland doesn’t charge sales tax.

Also, the data doesn’t factor in much of the estimated millions in Internet purchases by Marylanders.

Although state law sets up a so-called sales and use tax process that covers online sales, the payments are hard to enforce, and it is believed that many don’t pay the tax, according to a spokeswoman in the state comptroller’s office.



Digging a deeper trough

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