Strapped consumers cutting back

Charlottesville-area consumers are buying fewer cars, clothes, home furnishings and electronic appliances, but at the same time are spending much more in local restaurants, according to sales tax receipts from Charlottesville and Albemarle County.

During the first half of 2008, spending in Albemarle fell by roughly $17.8 million when compared with the first half of 2007 — marking the county’s first drop in taxable sales in recent memory.

In Charlottesville, the total amount of taxable sales held fairly steady by the midpoint of 2008 when compared with the same period in 2007. Yet the city’s stagnant sales come after several years of steady growth.

The latest sales tax figures, economists and business leaders said, show that Charlottesville-area residents are feeling the pinch of higher gas and food costs, as well as the effects of a sagging local real-estate market and the nation’s overall economic downturn.

“It’s finally hit us,” said Glenn Rust, president and CEO of the Charlottesville-based Virginia National Bank. “The key question is now how deep and how long. Nobody knows the answer to that.”

In the past, the Charlottesville area has been somewhat insulated from the nation’s economic woes, as the University of Virginia and the UVa Medical Center historically kept the region’s economy humming along. In this case, Rust said, it shows that Charlottesville is not impervious to the slowing economy, though it continues to see a healthy level of business growth.

“Is Charlottesville in a recession? Heck no. Is it doom and gloom? No way,” he said. “The business sector seems to be a little more cautious, but it’s still moving. Things are happening out there. It’s just a little slower than it was.”

Sales tax falling short

The lackluster local sales may also have implications for taxpayers in Charlottesville and Albemarle County. Partly because sales-tax collections have fallen short of projections, Charlottesville is anticipating a $1.78 million budget deficit and Albemarle expects a $4.1 million shortfall.

At the same time, the state government is projecting a shortfall of at least $1 billion, brought about by lower-than-expected revenues. State agencies — including UVa and Piedmont Virginia Community College — have been instructed by Gov. Timothy M. Kaine to draw up plans to slash their budgets by 5 percent, 10 percent and 15 percent.

John Knapp, a senior economist with the Weldon Cooper Center for Public Service at UVa, said the picture painted by the most recent sales tax figures is “sobering.”

“It defeats the idea that we’re somehow immune to major economic downturns,” he said. “We’re not. We can feel it.”

Much of the local sales slowdown can be attributed to lagging car sales and a moribund real-estate market.

Motor vehicle and parts sales during the first half of 2008 fell by 4.2 percent when compared with the first half of 2007, according to tax receipts published by the Virginia Department of Taxation.

Meanwhile, there were 760 homes sold in Charlottesville and Albemarle during the first six months of 2008 — the lowest number of sales in at least seven years, according to a mid-year report by the Charlottesville Area Association of Realtors.

Local sales-tax receipts illustrate the ripple effects of the region’s dreary real-estate market. Charlottesville and Albemarle’s building-supply stores, for example, plummeted from $97.9 million during the first half of 2007 to $67.2 million in the first half of 2008.

“The economy is slow. The housing market is slow. That’s pretty common knowledge,” said Dale Shumate, co-owner of Blue Ridge Builders Supply Inc. in Crozet. “It’s naturally affected us to some degree. Our sales are down, just like everybody else in this business.”

Things have not gotten so bad that Shumate has had lay off employees, though he has heard that several of his competitors have been forced to make cuts. Blue Ridge, he said, has been kept afloat lately by business from small homebuilders and home remodelers.

“It’s hurt, but we’re going to come out of this OK,” he said.

Despite the slowdown, Shumate added, his company is opening a new paint and decorating store at Lake Monticello. “We’re taking a gamble,” he said.

Eateries fare well

The fastest growing sector of the local economy, it appears, is the restaurant business.

Food services and drinking places in Charlottesville and Albemarle County reported $120.5 million in taxable sales during the first six months of 2008. During the first half of 2007, they reported $112.2 million.

“It hasn’t really slowed down for us very much,” said Michael McCarthy, owner of Dr. Ho’s Humble Pie pizza parlor in North Garden. “We’ve got people still coming in. It’s not really down at all.”

So, if consumers are cutting back on discretionary spending, why are so many people flocking to local eateries?

One theory is that the region’s tourists may be contributing to the restaurant industry’s boom. Monticello, the historic home of Thomas Jefferson, saw its visitation increase by 1 percent to 3 percent during the first eight months of 2008. Other local attractions report increased or steady visitation. And sales-tax receipts from hotels and motels in Charlottesville and Albemarle County show a slight increase during the first half of 2008 over a year earlier.

The Charlottesville region’s wineries and top-notch restaurants seem to be luring a rising number of foodies from the Washington area, said Allie Baer, interim executive director of the Charlottesville Albemarle Convention & Visitors Bureau.

“Culinary travel and tourism is doing tremendously well,” she said. “And I think it’s only going to improve.”

Restaurants might also be seeing more business because work habits are changing. After Charlottesville-area residents put in a hard day’s work, they might be less inclined to cook dinner at home.

Or, tourism and business officials said, the eatery boom might be from Charlottesville-area residents who opted to spend their discretionary income on a nice meal, rather than taking a vacation in an era of high gas prices.

Quick rebound

Although consumer spending has dipped a bit in the Charlottesville area, economists, business leaders and government officials said they expect the local economy will rebound quicker than in most other metropolitan areas.

“That’s one thing about being in a university town,” said Robert Walters, division manager of business taxation for Albemarle County. “It stabilizes things. We don’t have the extremes of other localities. We tend to be affected last and we tend to recover first.”

Walters said he could not remember a time when an economic slowdown had such a profound effect in the Charlottesville area.

“I’ve been in the job for 23 years,” he said. “My gut tells me this is significantly worse [than previous economic downturns].”

Chris Engel, assistant director of Charlottesville’s Office of Economic Development, said the city’s flat sales growth is no surprise.

“Our base is pretty stable,” he said. “I would expect it to stay pretty flat. We’re in a declining economy. People just aren’t running out and buying lots of new purchases. But they’re still buying clothes. They’re still buying food. Could just be hard times all over.”