Pent-up demand keeps spending strong in Arizona

2013-05-23T00:00:00Z Pent-up demand keeps spending strong in ArizonaHoward Fischer Capitol Media Services Arizona Daily Star

Despite the hike in payroll taxes that shrunk paychecks, Arizonans are spending at pre-recession levels.

And they're opening up their wallets not just for new clothes but for major purchases like furniture and vehicles, a new report from the state Department of Revenue shows.

The report of April sales tax receipts, which covers consumer spending in March, found taxable sales at $4.78 billion. That is 8.2 percent higher than the same period a year earlier.

That's not an anomaly, says economist Dennis Hoffman of the W.P. Carey School of Business at Arizona State University. He said it's pretty much in line with what he's seen since the beginning of the year.

Helping to spur the spending is Arizonans' pent-up demand after the recession to drive something new, or at least different. Overall, vehicle sales figures are the best they've been since late 2007.

"Auto deals are great right now; interest rates are low," and manufacturers are offering fuel-efficient cars, Hoffman noted. "You can get a decent sedan that gets 35, 40 miles to the gallon now," he said. "You don't have to buy a Prius to get that kind of improvement."

He said consumers are also spending more on such things as clothing and building supplies - "discretionary" items that aren't necessities.

But what about the federal budget stalemate and the sequestering of dollars to reduce spending?

That hasn't really hit Arizona, at least not yet, Hoffman said. But he warned that it remains an issue, as federal spending amounts to $85 billion a year in the state.

"We remain at risk," he said.

Hoffman said there was some "hesitation" in consumer spending in Arizona earlier in the year after the end of the federal payroll tax holiday. That put the levy back at 6.2 percent, up from the 4.2 percent level it had been at for the prior two years, reducing paychecks by anywhere from $10 to $20 a week for most.

But he said people seem to have adjusted: "We appear to have found our footing, and folks are back at the stores."

Also boosting March sales, Hoffman said, is that tax refund checks went out later than normal.

He acknowledged that the state's unemployment rate continues to languish at just below 8 percent, and he calls the pace of job creation "horrible."

But he said there are other signs showing total personal income on the rise. Many of those fortunate enough to have a job are getting raises, working overtime or getting bonuses, he said.

One thing to watch now is whether consumers hold back on major purchases until June. That is because the temporary 1 percent sales tax approved by Arizona voters in 2010 self-destructs at the end of May. And Hoffman said $300 on a $30,000 vehicle might be just enough incentive for Arizonans to keep their current cars a bit longer.

Dealers may seek to counteract that with special deals this month and next to keep the buyers coming in the door, he predicted.

The new Arizona figures also show a 4.4 percent year-over-year increase in spending in bars and restaurants, which comes on top of a record set last April, said Elaine Smith, an economist with the Arizona Department of Revenue.

Some areas of the economy continue to lag, including residential construction, where sales figures still hover at about a quarter of what they were in 2006.

April taxable retail sales receipts in Arizona (reflect sales made in March):

2007 - $4.91 billion

2008 - $4.65 billion

2009 - $3.82 billion

2010 - $3.07 billion*

2011 - $4.33 billion

2012 - $4.42 billion

2013 - $4.78 billion

* Figure not comparable due to one-time adjustments

Source: Arizona Department of Revenue

Major categories of retail sales for April 2013 (reflect sales in March)

Category total change from 2012

Manufacturing $226.6 million 5.8%

Motor vehicle dealers $651.3 million 11.9%

Furniture, home furnishings $297.0 million (-0.6%)

Building materials, lawn, garden $344.4 million 15.3%

Clothing and accessories $351.2 million 17.4%

General merchandise $794.3 million 7.6%

Residential construction $221.8 million 11.8%

Nonresidential construction $162.3 million 15.0%

Restaurant and bar $1,051.8 million 4.4%

Hotel and motel $299.9 million 1.5%

Source: Arizona Department of Revenue

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