1 OVERVIEW OF BUSINESS ACTIVITY 4th Quarter, 1995 (October, November, December 1995) Fourth Quarter, 1995 gross income declined 2.7 percent from Fourth Quarter, 1994. The overriding reason for this decline was the Boeing strike and weaker than expected Christmas retailing activity. Although the strike was settled just before Christmas, the combination of the strike and general consumer constraint caused retailers to more heavily discount their goods early in the season. Thus, although the total volume of retail transactions may have been comparable to the previous year, the actual dollar amount of sales was flat, or down in some cases. The fact that the strike was the primary contributor to the reduction in overall gross income was evidenced by a decline of nearly 23 percent for the manufacturing sector. If the manufacturing sector was adjusted to zero out the effects of the strike, statewide gross income for all industries would be up 4 to 5 percent from last year. Some industries did well in spite of a weak fourth quarter. Contract construction was up 3 percent with general building contractors up 5.9 percent. Within the manufacturing sector, food products was up 16.9 percent, paper and allied products 14.7 percent, petroleum refining 13.5 percent, and electrical machinery 19.2 percent. Within the major service industries, transportation was up 7.7 percent and communication and utility services was up 13.6 percent. Wholesale trade reflected slower growth with an increase of 2.9 percent, the relatively weak retail sector was up only 1.3 percent from last year. Within retail trade, building materials, hardware posted a decline of over 10 percent in gross income, with food stores showing a decline of 0.5 percent. Most other retail sector activity showed nominal growth; eating and drinking establishments was literally flat from the previous year. The largest dollar volume retail activity, auto dealers and gas stations, posted a 2.7 percent increase. Finance, insurance and real estate increased 7.3 percent with strong growth in finance, up 10.9 percent, and insurance reporting an 18.5 percent increase. Real estate and other finance reported declines of 7.6 percent and 11.5 percent, respectively. The service and other business sector reported nominal overall growth of 1.7 percent. Hotels/ motels was up 6.8 percent. Within the business services industry, advertising gross income was up 17.3 percent. Overall business services were up only 2.4 percent, a major component of the service sector, automotive repair services, was down 7.7 percent. Most other service sector industries were a mixed bag with some up and some down. Overall, much weaker growth than expected during fourth quarter due to the strike and general retail consumer constraint. Both wholesalers and retailers had a rough fourth quarter. The data indicates that First Quarter, 1996 may be off to a slow start, but the conclusion of the Boeing strike may turn consumer sentiments around and spur retail sector growth, which would improve the potential for growth in other industries such as manufacturing and wholesale trade. However, continued poor retail sales growth could continue to dampen First Quarter, 1996 expectations. SPECIAL NOTICE TO QBR USERS Changes to the Composition of Gross Income for Table 1 Effective with the Quarter 1, 1995 edition of this publication, Table 1, “Total Gross Business Income,” has been adjusted to eliminate double counting of gross business income and more accurately reflect the true level of gross income activity. Therefore, gross income data shown in Table 1 of this report will not be directly comparable to gross income in Table 1 for earlier publications of the QBR. (The Quarter 4, 1994 data in Table 1 of this edition has been adjusted so that the year-to-year change is accurate.) In recent years, a number of new tax lines were added to the excise tax return for special purpose taxes, including, but not limited to: solid waste tax, refuse collection tax, petroleum tax, and hazardous substance tax. In most instances, these taxes resulted in double counting of gross income data from businesses reporting on these new tax lines. During the period June 1986 through July 1989, six new tax lines were added that resulted in double counting of some business income. Additionally, Table 1 has always included use tax in gross income data which resulted in double counting when such purchases were subject to both Business and Occupation (B&O) tax and use tax (use tax is an in-lieu sales tax when sales tax was not collected on the original sale). In order to eliminate such instances of double counting, all use tax data has now been eliminated from gross business income shown in Table 1. Because of the changes made to gross income data published for 1995, we will republish Table 1 on a calendar year basis for the years 1988-1994 when Table 1 for calendar year 1995 is published. Table 1 for those earlier years will be available on a request basis. Years prior to 1988 are not directly comparable to later years due to the 1987 SIC code revisions. However, most of the new tax lines that caused the double counting problem were not in existence in 1987 and earlier years; thus year-to-year comparisons for years prior to 1988 can be made to later years using the new tax base if SIC revisions do not skew the SIC category in question. For analytical purposes, gross business income shown in Table 1 is now comprised of the retail sales tax line, all public utility tax lines and all B&O tax lines except retailing.