January sales slump, but tax reform heightens optimism

Cold weather and the holiday hangover account for a dip in Michigan retail sales in January, on the heels of a positive holiday sales season, according to the latest Michigan Retail Index, a joint project of Michigan Retailers Association (MRA) and the Federal Reserve Bank of Chicago's Detroit branch.

But recent federal tax reform is putting more money in workers' pay checks and reduced the tax burden on retailers, boosting confidence that consumers will spend more and retailers will invest in their businesses in the next several months.

The Michigan Retail Index's January survey found that 30 percent of respondents reported sales increases over December, 55 percent recorded declines and 15 percent reported no change. The results create a seasonally adjusted performance index of 42.5, a decrease from the 59.2 performance index reported in December 2017 but up from 40.5 a year ago.

The 100-point index provides a snapshot of the state's overall retail industry. Index values above 50 generally indicate positive activity; the higher the number, the stronger the activity.

Nationally, retail sales fell 0.26 percent in January but increased 5.4 percent year-over-year, the National Retail Federation said. The numbers exclude automobiles, gasoline stations and restaurants. The results comes as NRF is forecasting that sales will grow in 2018 between 3.8 percent and 4.4 percent over 2017.

While the January index number may appear disappointing, "keep in mind that we had a strong holiday season," says Jim Hallan, MRA President and CEO.

"And the future looks bright, now that people are seeing the results of the recent tax reform. We're hearing optimism across the board that consumers are more confident about credit availability and that their household's financial situation is better than a year ago and will continue to improve," Hallan said. "That bodes well for retailers."

The Retail Index shows that 66 percent of Michigan retailers expect strong sales through April, while 14 percent predict a decrease and 20 percent expect no change. That raises the seasonally adjusted outlook index to 72.5, according to the Retail Index survey.

When asked about their sales expectations for 2018, 68 percent of respondents said they expect an increase (with 21 percent expecting a decrease and 11 percent no change).

Tax reform will have a profound effect on the retail industry, which previously paid the highest effective tax rate of any sector of the U.S. economy. The National Retail Federation estimates savings will amount to $171.4 billion over 10 years. That will help retailers invest in their businesses and employees. Already, more than 3 million American workers are receiving special bonuses, higher wages or expanded benefits, according to NRF.

Category leaders in Michigan were department, jewelry and automotive service stores.

Michigan's sales tax receipts totaled $684.2 million in January 2018, a 1.6 percent decrease from January 2017, representing the first year-over-year decline in sales tax revenue since April 2017. But motor vehicle sales were up from a year ago, and fiscal year-to-date sales tax collections were up 0.3 percent from fiscal year 2016-17.

Michigan's jobless rate has not yet been released for January, but the national rate was 4.1 percent.

Published: Mon, Feb 26, 2018