Despite a slight drop in Arkansas sales tax revenue between the second and third quarters of fiscal year 2017, the holiday shopping season is expected to give the state’s economy a temporary boost.
Chief Economist Michael Pakko with the Arkansas Economic Development Institute at the University of Arkansas at Little Rock said a decrease in taxable sales between the two quarters still represents a picture of overall growth.
"We ended up with a very weak third quarter. It was down nearly two percent from the second quarter, although it was still over a half-percent higher than a year earlier,” Pakko said. “So, all in all, we’re looking at about 2.5 percent growth, a little bit above that, since the end of the last recession way back in 2009 up until the third quarter this year."
Pakko said economic weaknesses causing the drop are the result of a number of outside factors.
"When the underlying data on sales tax collections came out, the Department of Finance and Administration cited weakness across a number of spending categories," Pakko said. "One component in particular: the lower utility bills because of a relatively mild summer, so that would be expected to just be a temporary factor."
Aside from this one-off drop in sales tax revenue, Pakko noted the overall state of Arkansas’s economy is a plus for retailers during the holiday season.
"We’re seeing economic growth, we’re seeing wages start to pick up, and so that leads me to believe that this holiday season is going to turn out to be pretty good, with sales up about 2.5 to 3 percent compared to a year ago," Pakko said.
On a national scale, Pakko predicts a rise in consumer confidence should tax cuts built into the Republican tax reform plan take effect.
"To the extent that tax cuts are semi-permanent - that is, they’re expected to persist - they should have a discernable impact on increasing consumption spending, although that won’t necessarily translate to more rapid growth over time but rather a one-time boost at the time they would take effect, and that would carry forward," Pakko said.
Pakko said that the future of retail, particularly during the holidays, is largely dependent upon online sales.
"It’s a very rapid component of retail spending. So many of the successful retailers are those that are combining brick-and-mortar with e-commerce applications, taking advantage of both areas of growth," Pakko said.
Pakko says web sales account for around ten percent of total retail spending, increasing from less than four percent a decade ago.