The last couple of weeks delivered three major local headlines indicating 2018 may have been the start of an economic recovery.
First, unemployment hit 3.9 percent in Lafayette Parish and 4.3 percent in the metropolitan statistical area in December 2018, down from a high of 8 percent in June 2016 and besting Louisiana’s statewide average of 4.9 percent.
Second, taxable retail sales across the parish topped $6 billion, the second highest total on record.
Third, the residential real estate market produced more than $1 billion worth of transactions for the first time in Lafayette’s history.
After four years of bad economic news, these developments are a breath of fresh air.
But there’s ample evidence that any optimism should be guarded, considering the situation our economy’s still in.
Lower unemployment, but also less employment
In a vacuum, unemployment rates falling is a good thing. In the case of the Lafayette MSA — Lafayette, Vermilion, Iberia, St Martin and Acadia parishes — it means we have more than 8,000 fewer unemployed people today than just a couple years ago.
But the number of employed people dropped more than 20,000 — from almost 224,000 in 2014 to just over 200,000 in 2018. In other words, it’s not just that unemployment is down. There are fewer jobs in the market, period.
One of the reasons the unemployment rate decreased is because the size of the labor force shrunk from a high of almost 238,000 in 2014 to less than 210,00 at the end of last year. In other words, there are also fewer people even trying to find work in the market.
More troubling, during this same timeframe, average annual pay across all industries fell from $50,299 to $45,963 in 2017.
The bottom line is the economy is supporting fewer people working fewer jobs at lower pay.
Higher retail sales, but the city and unincorporated areas are still down
Everybody wins when taxable retail sales go up. Businesses make more money and government gets a bump through sales taxes, relieving budget pressures.
2018 was the second highest taxable retail sales total ever, undoubtedly a good sign. And Mayor-President Joel Robideaux celebrated in a Facebook post news that in the first quarter of LCG’s fiscal year (which is November through January) the city of Lafayette’s sales tax collections increased 4.1 percent compared to the prior year, from $20.6 million up to $21.4 million, and the unincorporated Lafayette Parish went up 25 percent, from $945,553 to almost $1.2 million.
But again, these numbers require some additional context before we get too excited.
For example, while the smaller municipalities in Lafayette Parish saw increases in taxable retail sales ranging from 8 percent to 25 percent from calendar year 2017 to 2018, the city of Lafayette only went up 1.1 percent.
While that’s obviously better than the previous three years of decline, it didn’t even keep pace with the rate of inflation, which was 2.4 percent. So while the total dollar amount of taxable retail sales went up in 2018, the market effectively shrank when you factor in inflation. If the city of Lafayette’s taxable retail sales had simply kept up with inflation the last four years, the city’s 2018 total should have been almost $4.8 billion; instead, it was less than $4.3 billion.
This isn’t parsing details. The city of Lafayette accounts for more than 70 percent of all taxable retail sales across the entire parish. So if the city’s retail market wasn’t lagging, the overall parish retail market would be doing even better.
The other number that requires some additional context is the increase in taxable retail sales in unincorporated Lafayette.
In 2018, that total rose 4.3 percent, and in the first quarter of LCG’s fiscal year parish sales tax collections are up 25 percent from the previous year. Robideaux cited this increase as a balm for the parish’s failing financials on his Facebook page.
“We should see a resulting modest improvement in sales tax collections, helping relieve some pressure on the parish budget,” he wrote.
But there’s some context missing here, namely that taxable retail sales in unincorporated Lafayette dropped from $666 million in 2014 to $420 million in 2018. Given the 1 percent sales tax in unincorporated Lafayette that helps fund the parish general fund, that means the parish collected almost $2.5 million less in sales tax revenue last year than it did four years ago.
Meanwhile, in last year’s budget, $1.8 million was cut from the parish general fund, effectively zeroing out the fund balance.
Last year’s 4.3 percent increase in taxable retail sales in unincorporated Lafayette added about $175,000 in new sales tax revenue, or less than 10 percent of the cuts that were made in a single year.
While these increases in taxable retail sales are undoubtedly positive indications, we still have a lot of room for improvement to get the city and unincorporated Lafayette back on track.
The rent’s too darn high
That total residential real estate sales across the Lafayette MSA included more than 5,268 homes priced higher than $1 billion means it was a great year to be a residential real estate agent. But that doesn’t necessarily signal that it was a great year for the local economy.
For starters, sales of newly constructed homes are down to 800, compared with more than 1,100 a few years ago. That means fewer homes were built, which means less money invested in developing local real estate, which leads to slower growth in local government’s property tax revenues.
But a more troubling trend was cited in this article from The Advocate:
Agents across the board saw a lot of renters become homebuyers last year, and that may have been a reason why existing home sales in Lafayette Parish totaled 2,579, also a record.
“The cost of rent has gone up so much in the area that it makes sense to buy a house,” Van Eaton & Romero Realtor Joel Bacque told the paper. “We’ve seen people move on from paying landlords to putting that into equity for themselves.”
Indeed, after some initial research, it appears Lafayette’s rent may be too darn high.
Using this BankRate.com cost-of-living calculator, I was able to uncover the following stats:
|City||Average Home Price||Average Rent|
|Baton Rouge, LA||$275,000||$861|
You’ll notice a pattern where the cost of renting in Lafayette is higher relative to the cost of buying property compared with other cities.
Where this becomes troubling is when we factor in new data from United Way’s ALICE report.
ALICE is an acronym that stands for Asset Limited, Income Constrained, Employed. Basically, what United Way has done is identify those who are employed and live above the poverty line but don’t earn enough to pay for the cost of living in their area.
In Lafayette Parish, 44 percent of the population lives either in poverty or below the ALICE line. These are generally people who can’t afford to buy a house and are left to the whims of the rental housing market.
So the cost of living is increasing from high rents, average wages are decreasing from an ailing economy, all while almost half of the population is failing to make ends meet.
Hey, this is still good news!
In the end, these headlines are still ultimately good news. They provide more hope that the worst is behind us and that at a minimum our economy may have finally hit bottom. These feelings were echoed by business leaders at The Advocate’s economic summit held this week.
But we can’t afford to celebrate these developments without evaluating them within the context of the hole our economy’s still in.
A strong economy isn’t just fewer unemployed people and more retail and home sales. It’s an abundance of good jobs, sustained growth and access to opportunity for everyone who calls Lafayette home. And we’ve still got a ways to go before we’re anywhere close to making up for the ground we’ve lost these last four years, largely due to the oilfield downturn.