By Dr. Patrick Jones
What can we make off the blow-out performance of retail sales in Walla Walla County last year? The Washington Department of Revenue (DOR) recently released its 2021 results and they delivered a shockingly large increase. As Trends indicator 1.2.1 reveals, taxable retail sales slightly exceeded $1.5 billion. Just four years ago, they hadn’t quite hit $1 billion.
As the graph shows, the year-over-year increase was greater than 23%. In the entire series for this measure, no annual increase has exceeded 20%. The lines also demonstrate that since 2018, the pace of retail sales in the county has beat the overall Washington state rate – in the last two years by wide margins.
What made 2021 such a good year for local government and state revenues? In a word, construction. A deeper dive of DOR annual reports shows a massive increase in the sub-category “construction of buildings.” Revenues in that line item jumped to over $172 million versus $93 million in 2020. Closely associated with this sub-category are the revenues reported by the “specialty trade” contracts, whose revenues climbed by over $9 million. The third sub-category, “heavy construction and highways,” also rose, in this case by $17.5 million.
The rapid pace of a significant component of construction activity can be gleaned from Trends indicator 1.5.3, tracking residential construction permits. The graph shows 2021 to be the fourth-highest in Walla Walla history and the largest since 2006. In contrast to most prior years, multi-family claimed a significant chunk of total permits.
Beyond construction, county sales subject to retail taxes fired on all cylinders. Only one sector, professional & technical services, registered a decrease. Nearly all the other major taxable industries or sectors posted double-digit increases. Leading the pack by total dollars was hospitality (accommodations & eating/drinking), followed by sales of motor vehicles and parts. Rounding out the top five were “miscellaneous retailers” and manufacturing. In other words, autos, accommodations and restaurants roared back from their pandemic downturns.
Changes by percentage indicates the intensity that a sector or industry experienced. By that measure, transportation & warehousing, a relatively small sector, emerged on top, with a 73% increase. It was followed by construction, whose large moves in 2021 represented led to a 48% increase. Rounding out the top five percentage gainers in the county were, in order: hospitality, furniture & home furnishings and arts, entertainment & recreation.
And the future? If we were to extrapolate the level of county taxable retail sales in 2026 from the past five years, taxable retail sales would land at $2.75 billion. That’s assuming a compounded annual growth rate of 12%. But it would be foolhardy, in our opinion, for any local jurisdiction with taxable retail sales as part of its revenue mix to think that this rate will continue into the near- to mid-term.
For 2022, data for the first quarter have been released. According to the DOR, the first quarter also put up nearly a double-digit increase, at 9.3%. As in 2021, construction claimed the top spot for an increase in taxable sales, followed by hospitality and manufacturing. In percentage terms, wholesale trade again led the pack, followed by gas stations – a likely consequence of the large run-up in petroleum prices.
The state economists charged with forecasting, the Economic & Revenue Forecasting Council, do not anticipate continuing blow-out performances over the next few years. The Council’s most recent (June) projections over the upcoming state fiscal biennium, July 1, 2023 – June 30, 2025 calls for a 7% increase in taxable retail sales.
In light of the past five years, Walla Walla budgeters might consider a slightly higher rate. But then again, maybe not. Prudence plays a large part in managing public finances. Still, a minimum of mid-single digit increases seems a reasonable assumption over the next two years.
For now, most signs point toward a robust 2022 in local activities captured by taxable retail sales. If tourism in Walla Walla follows national trends, it will probably return to pre-pandemic levels by year-end. Construction activity is likely to proceed at a pace not too far off that of last year. The pent-up demand nationally for autos shouldn’t be too different in Walla Walla, leading to strong sales. This assumes that dealers can find inventory, of course. And the local harvest of grains, hay and legumes is on track to produce historic yields at record high prices. While the sector doesn’t pay much retail sales, its income supports spending in many sectors.
At the moment, then, Walla Walla’s economy finds itself in a good place.