Ringing Registers

Drilling Down on Retail Sales

by Leslie Turk

**Wednesday, July 28, 2010
Written by Leslie Turk

A timeline of the drilling ban's potential impact on retail sales alone, one of the best barometers of fiscal activity, reveals a bruised Lafayette economy.**

The impact of the drilling moratorium on retail sales can be reduced to three likely scenarios, says Lafayette Economic Development Authority President and CEO Gregg Gothreaux, with each creating a darker economic picture for Lafayette Parish. More disheartening about the looming threat is that retail sales, which got off to a slow start this year after falling 11.6 percent in 2009 ($5.4 billion in 2008 versus $4.8 billion last year), were on the rebound. For the first two months of 2010, sales were down nearly 15 percent but were beginning to inch up: for the first five months of 2010, compared with the same period last year, sales are off 7.11 percent. That's quite a turnaround.

And there was more reason for optimism, Gothreaux maintains. "The Lafayette Parish unemployment rate has been dropping and improving to an impressive 4.8 percent, second lowest rate in the state," he says. "In a time where the U.S. unemployment rate is 9.7 percent, Lafayette Parish is half that and dropping. It's especially good when you consider that a 4 percent unemployment rate is thought of as natural and healthy."

Before the Deepwater Horizon blowout and subsequent drilling moratorium, LEDA's forecasting model was showing that retail sales were rebounding so swiftly that they would likely match 2009 based on multiple moving averages, seasonal adjustments and trending formulas, explains LEDA Research Coordinator Meg Segura. "Furthering the model's prediction is that a number of leading economic indicators are performing better this year than they did at this time last year," she says. The average weekly number of initial unemployment insurance claims in Lafayette Parish is down to 150.3 claims per week year-to-date compared to an average of 177.4 claims per week last year. Also, adds Segura, the number of new residential building permits totaled 434 through June of this year, up from only 416 at this time last year.

In addition, stocks of the eight public companies headquartered in Lafayette Parish (LHC Group, PHI Inc., Stone Energy, PetroQuest, IberiaBank, MidSouth Bank, Teche Federal and Home Bank) have been performing almost 31 percent better than in 2009.
At the request of ABiz, LEDA's staff, led by Segura, compiled a report on the impact of the drilling moratorium that projects three different outcomes for Lafayette Parish and Lafayette Consolidated Government based on when the moratorium will end. LEDA utilized the LSU Center for Energy Studies' Deepwater Moratorium: Overview of Impacts for Louisiana, by David Dismukes, as the foundation for the analysis, which focuses on how dwindling retail sales revenue will affect Lafayette Parish businesses and LCG's budget.

LEDA also took the analysis a step further, measuring the economic effect of the moratorium on the parish's employment, household earnings and operational expenditures.

In his study, Dismukes concluded that Lafayette Parish will bear 38.44 percent of total economic impact from the moratorium, using the following assumptions:
People typically spend 50 percent of their income on sale taxable goods
37.5 percent of their income is spent on taxable goods in the city of Lafayette (according to historical retail sales trends from the Lafayette Parish School Board Sales Tax Division)
LCG gets the 2 percent city sales tax to help fund its budget
In the 2009/2010 fiscal year, LCG planned to get $75,374,337 from sales tax revenue
On average 5 percent of the output would have been spent on taxable goods (businesses spend only a small portion of their money on taxable goods)
The analysis found that every two months, $100 million in output is lost in Lafayette Parish; every four months, workers in Lafayette Parish lose $100 million in wages and LCG loses 1 percent of its retail sales revenues; and every six months, 1,000 more jobs are lost in the parish.
As it has in the past, Lafayette once again appeared resilient in the face of the severe national downturn in the economy; and by many measures even the small amount of pain the area had endured was easing. The drilling moratorium, however, has cast a major funk over what was a collective confidence about Acadiana's future.

"Under the pressure of this egregious moratorium our people and our business community suffers with each passing day," Gothreaux says. "The path to our economic demise as a region is clearly laid at the feet of this moratorium and those who impose it."

If the moratorium ends now:
The total economic impact to Lafayette Parish would be $419 million
$202.2 million in wages would be lost and 3,177 people would be without a job
Retail sales would suffer a $96.8 million loss, decreasing 2 percent
LCG would lose $1.9 million in sales tax revenues, a decrease of 2.6 percent

If the moratorium ends by Nov. 30:
The total economic impact to Lafayette Parish would be $589.3 million
$252.2 million in wages would be lost and 3,367 jobs would be lost
Retail sales would suffer a $124 million loss, decreasing 2.6 percent
LCG would lose $2.5 million in sales tax revenues, a decrease of 3.3 percent

If the moratorium extends past Nov. 30:
The total economic impact will increase by $56.9 million every month thereafter
$16.5 million in lost wages per month and 153 jobs lost each month
Retail sales would suffer a $9 million loss each month; after a year, retail sales would lose 3.7 percent
LCG would suffer a $180,860 decline in sales tax revenues each month; after a year, sales tax revenues would decrease 5 percent

Potential Moratorium Impacts - Louisiana Only

While allocation of total impacts across parishes may not appear large, the total employment impacts, on a share of total oil and gas employment basis, could be very large for many individual parishes.

Click here for chart