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.

Statewide, home construction permits for the state peaked in May at 330 single-family homes and slipped in subsequent months, according to the U.S. Census Bureau. The number of permits from April through August exceeded the year-ago periods in every month except July.

By contrast, sales of existing single-family homes in Maine rose 24.59 percent in September, more than double the increase nationally. Those gains came on top of jumps of 20 percent in August and 31 percent in July, year over year.

In addition to big purchases like cars and homes, a variety of other factors, from job growth and interest rates to business investment, need to be taken into account to get a thorough understanding of the state’s overall economic health, economists said.

Maine’s unemployment rate in August was 7 percent, up from 6.9 percent in July but down from the year-ago rate of 7.3 percent. The state Department of Labor estimated that 50,000 Mainers were unemployed in August, 1,700 fewer than a year ago.

“Things are better than they were, certainly, but a lot of what we want to see is just consistent growth without some of the starts and stops,” Rector said. “The federal debates create uncertainty for businesses and households, and that drags on how consumer(s) and businesses spend and hire.”

The crucial test of consumer confidence will be September and October retail sales figures, which will indicate whether the 16-day partial U.S. government shutdown, which began Oct. 1, slowed down spending, McConnon said.

“We’re cautious until we see September and October numbers. We need to see whether the government shutdown jiggled consumer confidence,” said Curtis Picard, executive director of the Retail Association of Maine. “It remains to be seen what will happen because the situation has not been permanently resolved.”

Budget battles could become a factor again in a few months, since Congress reached an agreement only to keep the government running until Jan. 15 and allow additional borrowing until Feb. 7.

“Psychologically, it (the shutdown) added to people’s concerns about the future,” Collins said. “However, I don’t think it had a significant impact on our sales. We didn’t see a direct effect on our business. But it makes people uneasy.”

Adam Lee, chairman of Lee Auto Malls, which has dealerships throughout Maine, agreed that the government shutdown made people anxious about big purchases.

“My gut feeling is that even non-government employees who might have been thinking about buying a car may have waited to buy because they were rattled. Everyone got a little shook up,” Lee said. “We’re still having a really good October and caught up, but the days of the shutdown were quiet days.”

For Maine, a tourist destination, restaurant and lodging sales are key measures of economic health. Tourism is a nearly $5 billion business in the state, with the summer months generating half of that spending, according to 2012 figures from the Maine Office of Tourism.

“August is a huge month. Lodging rates continued to increase and the higher rates were being absorbed by the market,” said Greg Dugal, executive director of the Maine Innkeepers Association.

In Portland, for example, the average daily room rate in August rose to $146.13, up from $136.22 a year ago, according to Smith Travel Research.

“A rising tide lifts all boats – when lodging sales are up, restaurant sales tend to rise. Meals and lodging are discretionary items, and when that money gets spent, that speaks well of consumer confidence,” Dugal said.

Dugal cautioned, however, that tourism sales figures could take a hit in September and October because of the federal shutdown. Some vacationers canceled trips to Maine after Acadia National Park closed as part of the government shutdown, he said.

The Hampton Inn Freeport/Brunswick said its summer and fall occupancy rates have exceeded its own expectations and the hotel saw only a hiccup from the shutdown when Bath Iron Works postponed the christening ceremony of the USS Zumwalt destroyer set for October. The shipyard plans to reschedule the formal christening in the spring.

“Occupancy overall is up year over year and has exceeded our expectations,” said Chris Barstow, general manager of the Hampton Inn Freeport/Brunswick. “We have continued to stay on track and we haven’t seen any blips in consumer spending other than the one weekend of the canceled christening.”

The Bar Harbor Grand Hotel said it had three or four canceled reservations because of the closure of Acadia National Park, but most visitors kept their vacation schedule and stayed to visit other parts of Mount Desert Island, said the hotel’s property manager, Dennis Clark.

The hotel said it saw a record season for occupancy from July through October. The hotel closes for the winter in the first week of November.

In Old Orchard Beach, the Normandie Oceanfront Motor Inn saw occupancy rates jump from July Fourth through the end of August and remain as strong or slightly higher in September and October than they were a year ago, said owner and manager Mike Buffard.

Buffard said the government shutdown didn’t disrupt customer traffic during the fall. Instead, he worried that Maine hotels could lose traffic to other states over time because of the higher hotel tax rate, which increased to 8 percent from 7 percent on Oct. 1.

“We’re all a little concerned about the state tax going up. They say it’s only temporary until June 30, but you never know,” Buffard said. “It could hurt business and turn customers away to our neighbors to the south.”

Jessica Hall can be contacted at 791-6316 or at:

jhall@pressherald.com

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