November 3, 2013

Revival of the fittest: Maine’s economy shows strength

Key sectors are showing signs of life. Could an overall turnaround be close behind?

By Jessica Hall jhall@pressherald.com
Staff Writer

The Normandie Oceanfront Motor Inn in Old Orchard Beach booked more reservations and charged higher room rates than a year-ago.

click image to enlarge

click image to enlarge

Damariscotta Hardware sold more paint and hardware supplies than last year.

Lee Auto Malls sold more vehicles this summer compared to last year.

Consider that with other indicators, such as strong home sales and lower unemployment, and Maine’s economy looks like it’s getting stronger. But economists are sounding a note of caution.

“There were some indications that the summer was brighter, economically speaking,” said State Economist Amanda Rector. “Retail sales for June, July and August were up across all categories, led by building supplies and autos. ... Everyday purchases in retail still grew but not as vigorously. Things are turning around a bit, but the indications are that there’s still a ways to go.”

Recent figures released by Maine Revenue Services, the state tax department, seem to bear out that assessment: Taxable retail sales for the month of August rose 6.1 percent from August 2012, with gains in all categories. For a state reliant on tourism for $5 billion in economic stimulus, Maine also saw a 6.1 percent increase in August’s restaurant and lodging sales compared with a year ago. The state is expected to release September retail sales figures later this month.

However, that rise is tempered by figures that show the sale of big-ticket items such as cars and building materials, both considered economic bellwethers, were flat or slightly down when looked at over a period of several months this year. That’s despite the fact that they showed sharp gains when figures from August 2012 are compared with those from the same month a year later.

“There are signs of improvement,” said James McConnon, professor of economics at the University of Maine. “We would like to see broad gains in all sectors to get a better measure of spending and consumer health. There are some sectors that are growing but rather weakly.”

In August, taxable retail sales for building supplies jumped 10.3 percent and auto sales rose 8.3 percent from August 2012. Areas such as general retail sales and sales in specialty stores rose by smaller margins: 2.6 percent and 1.9 percent, respectively, from a year ago.

“We’re showing growth in two important sectors for consumer and small-business spending – autos and building supplies. But these areas were hit very hard in the recession. While it’s good to see those areas coming back, they are building off a low base,” McConnon said.

Rector also noted that building homes and buying cars are often motivated by lower interest rates. The growth of big purchases or investment could slow if interest rates rise significantly in the future, she said.

Charles Colgan, professor of public policy and management at the University of Southern Maine’s Muskie School of Public Service, also sounded a note of caution, saying that looking at just one month doesn’t accurately reflect the health of the state’s economy. Instead, it’s important to look at trends over a longer period and adjust for seasonal factors, he said.

Over four months from May through August, for example, auto sales were mostly flat with a small uptick in August. Building supply sales peaked in June and have since fallen, which is typical for recent trends in the construction industry, economists said. Sales of those items were still above the year-ago periods.

S.W. Collins Co., a building supply company based in Caribou, said building supplies sales during the summer varied throughout the state, with the biggest gains in Cumberland and York counties, where housing starts have been strongest. Sales in central Maine are mixed, while Aroostook County sales have been flat, said company President Sam Collins.

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