County Executive  |  Economic Indicators -- Tax Revenues Mixed
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   Albemarle County, Virginia

October 31, 2010     

Quarterly Economic Indicators

TAX REVENUES MIXED

Tax revenues offer a good indication of the state of the County’s economy.  Changes in sales, meals, and hotel/motel tax revenues in particular offer a reasonable approximation of strength or weakness in local economic conditions, since these revenue streams reflect the underlying consumption of many goods and services.  At the national level, private consumption represents roughly 70% of all economic activity; the exact local percentage is not known but is thought to be a major component of Albemarle’s economy.  There exists very mixed news with regard to the performance of hotel/motel revenues and sales tax revenues between FY 10 Q1 and FY 11 Q1, the last quarter for which complete data exists. 

Hotel/motel tax revenue dropped by about 9.7% between these quarters.  (Note that the large increase between FY 10 Q3 and FY 10 Q4, shown on the graph below, reflects the seasonal impact of the University of Virginia graduation ceremonies, which take place in May of each year).  This substantial drop in Q1-to-Q1 performance of hotel/motel tax revenue calls into question whether or not the County’s tourism industry has bottomed out.  If tourism did not bottom out, then we would expect to see meals tax revenue fall between the quarters in question.  Data for meals tax revenue, unfortunately, was not available at the time of publication. 

As for sales tax revenue, this item fared far better than did hotel/motel revenue.  Between FY 10 Q1 and FY 11 Q1 the County’s sales tax revenue grew by about 8.2%.  The strength of this number is consistent with the timing of the officially-designated end of the “Great Recession” (see GDP story).  Note that the increase in sales tax revenue, however, coincided with a small decrease in U.S. consumer confidence between the two quarters (see Consumer Confidence & Leading Economic Indicators story).  This situation highlights the fact that, although a positive relationship is thought to exist between consumer expectations about the future, on the one hand, and current consumption, on the other hand, this relationship is not entirely perfect, especially if we compare changes in confidence at the national level with changes in local consumption.  In the present case, at the national level consumer confidence tapered off a bit Q1-to-Q1, but consumption in Albemarle County, at least as measured by sales tax revenue, increased.  (Hotel/motel tax revenue, as already noted, behaved in a way that was consistent with the direction, if not the magnitude, of the change in consumer confidence).   

It should be pointed out that a number of factors might be influencing consumer behavior in such a way that growth in private consumption will be limited in the next several quarters.  One factor almost certainly is the state of the labor market.   Even though the U.S. economy has bottomed out and begun a modest recovery, the rate of growth in the economy has not been sufficient to bring down the unemployment rate (see Unemployment Rate story).  This uncertain employment environment clearly would not encourage consumers in Albemarle County to increase their purchases goods and services.  A second factor that could be working against growth in consumption in the County involves ongoing weakness in the local real estate market (see Housing Prices story).  As housing values have declined, Albemarle consumers likely feel less wealthy than they did during the “boom” years and, consequently, probably are spending less than they would if their housing-related wealth had not fallen with the housing market.

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