Feelings run strong in our community when it comes to our northern neighbors.
Much has been said in the past two years about traffic, parking and the impacts of the traveling shopper. The question is, with the loonie in a slump and available parking at our area stores and malls becoming easier to find, should you be concerned? Could fewer Canadians mean lower tax revenues which impact public services? Could your taxes rise?
Since the Great Recession in 2008, the U.S. economy has responded with significant growth. Contrary to what many believe, the U.S. gross domestic product surpassed its pre-recession high in early 2010. The strength of the U.S. economy has caused the U.S. dollar to rise in comparison to many other global currencies.
Other areas, notably Canada, have been experiencing economic decline with the strength of the Canadian dollar reaching a five-year low. The slumping loonie has affected many of Canada’s less essential markets, such as tourism and luxury items. The Canadian economic situation has even begun to have adverse effects on foreign sales in Whatcom County. Currently the Canadian dollar is around 82 cents compared to the U.S. dollar; two years ago the Canadian and US dollar were on par with each other.
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The decrease in the value of the Canadian dollar relative to the U.S. dollar has reduced the number of Canadian consumers traveling to Washington, according to border data. In the first quarter of 2013 when the U.S. and Canadian dollars were at parity about 2.3 million vehicles crossed the border. In the first quarter of 2014 only around 2.2 million vehicles crossed into Whatcom County.
While this decrease in Canadian’s coming south has lessened the traffic on our local streets, it has also affected the local companies that rely on Canadian consumers for sales. Many local stores like Costco and Macy’s benefit selling large portions of their inventory to Canadian consumers.
In the first quarter of 2013 Whatcom County had $757.1 million worth of taxable sales, however in first quarter of 2014 Whatcom County reduced this to $754.9 million. While this $2.2 million decrease in sales cannot be solely attributed to the slumping Canadian dollar, the absence of Canadian shoppers is having an effect. January of 2015 had even lower sales than January of 2014, setting the expectation of another down quarter as the Canadian dollar continues to struggle.
The reduction of sales is critical since Washington’s tax base is centered on sales tax. If fewer dollars are spent in Whatcom County, then the various jurisdictions will have less tax revenue to support services. Less tax revenue brings the conversation of reducing services or increasing tax collection. Sales tax revenues are both used in the general fund and for dedicated items such as mental health, transportation and criminal justice. (see www.cob.org/documents/finance/publications/sales-tax-distribution.pdf for the current Bellingham distribution.)
More telling than retail sales is the retail trade category since this eliminates most non-store based transactions. Within this category there has been a nearly $10 million dollar decrease when comparing the first quarters of 2013 to 2014. Comparing the total retail sales decrease with the retail trade date it appears that many transactions that were taking place in a store have potentially migrated to orders that are shipped indirect to the customer – whether American or Canadian.
On the positive side, lower gas prices are attractive to Canadian consumers and this pull mitigates some of the effect of a weak Canadian dollar. Hart Hodges, director of the Center of Economic and Business Research said that both forces are in play yet the net effect is uncertain until we have more data to analyze.
The Center for Economic and Business Research at Western Washington University conducts analysis to help businesses, non-profits and government agencies make informed decisions. Learn more at http://cbe.wwu.edu/cebr/.
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