Borough sales drop: Report: Second quarter numbers down 1.3 percent

Posted: Friday, December 04, 2009

Second quarter sales in the Kenai Peninsula Borough fell by 1.3 percent from 2008 to 2009, marking the biggest year-to-year decrease of second quarter sales in at least 15 years, according to a borough quarterly report.

The Kenai Peninsula Borough's second quarter sales dropped 1.3 percent compared to last year.

Between 2004 and 2008, second quarter (calendar year) sales climbed from less than $400 million to more than $700 million, but the number dipped to about $605 million this year, according to the budget report.

Second quarter sales have not dipped in the borough since they did so slightly between 2003 and 2004. The last significant plunge came between 1998 and 1999, the report data show.

John Janik, the borough economic analyst who compiled the report, said it is important not to put too much stock into second quarter numbers, which account for borough sales in April, May and June 2009.

"When it's first done, a quarterly report is based on incomplete data. It's going to change over the course of the year as people file late returns," Janik said. The third quarter, Janik and other experts say, is more telling because the local economy is largely dependent on summer tourism. Janik said he would begin analyzing the summer's sales reports early next week.

Though the third quarter numbers will tell more of the story, Alyssa Shanks, an economist with Alaska's Department of Labor, said the drop in second quarter sales can help forecast the year's final numbers.

"I wouldn't be surprised that when the year's numbers come in, the year will be down," Shanks said. Whether or not this year's sales drop will be the most significant in 15 years, she could not predict. That will depend largely on how summer tourism fared, she said.

Second quarter tourism sales decreased by more than $10 million. They had been rising between 2004 and 2007. Of course, April, May and June do not draw as many visitors to the Kenai Peninsula as July, August and September -- the third quarter months.

In general, consumers have been spending less on vacations recently, according to Shanks.

"Consumer confidence is way down," Shanks said. "We get a lot of tourists from the Lower 48. No matter where you are coming from, summer 2009 wasn't a year that you really wanted to spend a lot of money."

Construction, government and utility sales were the only categories of 12 to have better second quarters in 2009.

Shanks said second quarter numbers are more indicative of how locals are spending their money.

"The second quarter shows changes of what the year-round population is doing in terms of their spending," Shanks said. "If the first and second quarters are both down, then there is a strong indication of what people are doing."

Gross sales in 2009's first quarter spiked from last year, but taxable sales declined compared to 2008.

More than gross sales, the borough's bigger concern is taxable sales, because more than 40 percent of the borough's projected revenue comes from sales tax. Taxable second quarter sales dropped from $271 million to $232 million, or by about 1.2 percent.

That drop amounts to about $1.9 million lost in borough sales tax revenue, finance director Craig Chapman said. But he attributes that primarily to the non-prepared food tax exemption that went into effect this year. The tax exemption lifted the borough's tax on certain food items during the second quarter.

Purchases over $500 are not taxed in Alaska, so the first quarter sale spike could be attributed to consumers making big purchases with their tax refunds, Janik suggested.

Shanks said the spike in gross sales does little to provide hope to the year's final sales tallies because of the troubles in the general economy.

"It may be a little more difficult to project that it (the overall sales numbers) would be down, but looking at the rest of the economy, jobs, unemployment, employment -- it all works together," Shanks said. "It's very hard for one piece to look bad without pulling the rest down."

Reporter Andrew Waite can be reached at Andrew.waite@peninsula

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