The first quarter of 2011 seems to present a rosy picture of the local economy: March sales tax receipts were up 2.54 percent relative to the same month last year, the fifth straight month showing an increase in sales tax receipts.
Clearly, 2011 is showing slight improvement over 2010. However, 2011 has also been more expensive than the previous year, with a significant increase in fuel prices driving overall inflation. Nationally, food prices rose in March at the fastest rate in three years, fast on the heels of a 5.6-percent increase in gas prices.
Therefore, the question needs to be raised regarding the effects of inflation on increased sales tax numbers. Over the past five months, sales tax receipts show an average 1.61 percent increase relative to the previous year’s collections.
According to report released Friday by the U.S. Labor Department, the March Consumer Price Index saw a .5-percent increase. That rise took the year-on-year inflation reading to 3.2 percent, the highest since October 2008.
With inflation apparently outpacing gains shown in local sales tax numbers, rising prices for gas, food and other items would most likely account for the increase shown in last week’s sales tax report.
Furthermore, the core CPI, which excludes volatile food and energy costs, showed a 12-month increase of 1.3 percent, its highest level since February 2010.
At the national level, concerns about inflation — driven mostly by high gas and food prices — have eased during the past couple of weeks, especially behind the recent drop in oil prices. Last week, oil prices sank by the most in two and half years. With Americans driving less due to high gas prices, concerns about slowing energy demand sent oil prices into a steep decline, from $114 a barrel at the start of May to about $97 last Friday.
Last Friday, the nation’s average price for a gallon of gas was just under $4 and many analysts believe it could drop further, to $3.50 by as soon as next month.
As of press time Wednesday, average sale price for gas in the county was at or near the national average.
During March, oil prices were rising steadily because of the unrest in the Middle East: the “Arab Spring” began in early February with protests in Egypt and soon spread to larger oil-producing countries such as Libya, Syria and Saudi Arabia.
Wall Street speculation over Middle East protests led to fears that gas could hit as high as $5 a gallon, leaving Americans with less money for vacations or durable goods. Decreased spending could lead to diminished corporate profits (outside of oil companies), delaying hiring and even potentially tipping the economy back into recession.
However, the Labor Department reported last week that the rate of inflation had slowed considerably in April and that, along with a strengthening labor market, helped to buoy consumer confidence in early May.
After U.S. gasoline futures registered their sharpest daily drop since September 2008 last Wednesday, slipping even further on Thursday, price per barrel rebounded to over $100 a barrel earlier this week as ramped-up domestic production and further speculation
Still many analysts believe that the U.S. economy has past the worst of rising prices — at least for now.
Economically speaking, the next few months could prove to be interesting for Americans in general as well as for the residents of Pagosa Country.
If prices meet expectations over the next few months and level off after months of accelerating increases, local sales tax revenues might reflect the effects of inflation on those numbers (although 2011 prices will remain higher than prices for 2010).
The town established a flexible budget policy in late 2008 such that a drop in revenues would automatically mandate a cut in expenditures. Averaged over two years (2009 and 2010), the town and county’s sales tax collections are slightly up for the last two months (plus .69 percent), but slightly down from the past three months (minus 1.78 percent). Nonetheless, the three-month decrease is not enough to trigger further budget cuts (which, by policy, would require a 5-percent or more decrease over three months).
However, sales tax collections for March are averaged out over the past five years, sales tax revenues in April are down almost 7 percent from that average. Compared to April, 2007 (the best performing year out of the last five), April collections are down almost 13 percent.
Today at noon, Pagosa Springs Town Manager David Mitchem will present April’s numbers to Town Council during the May mid-month council meeting in Town Hall.