Pennsylvania’s Independent Fiscal Office (IFO) released an updated economic forecast for fiscal year 2021-22 that shows higher than anticipated revenue, driven by stronger wages and inflation.
The IFO’s mid-year update for fiscal year 2021-22 showed general fund revenues were adjusted upward from nearly $42 billion to $45.3 billion, accounting for a more than 8% adjusted growth rate.
The $3.4 billion increase was driven by better than anticipated tax collections, with corporate net income tax up 18% and non-motor vehicle sales tax up 7.8%. Those figures are significantly higher than the previous official IFO estimate of minus-8.7% growth for corporate net income and minus-0.4% for non-motor sales tax.
The IFO increased the estimate for personal income tax withholding from an adjusted growth rate of 4.8% to 8%, and revised other personal income tax collections from minus-0.7% to 9.5%. The inheritance tax collections also were revised up from 2.3% growth to 18.6%. In dollars, the new estimate is about $773 million more than anticipated in personal income tax and about $209 million more in inheritance tax.
“What we’re finding for this year is revenue is significantly outperforming our estimate,” Matthew Knittel, director of the IFO, said Monday during a virtual presentation.
Knittel cited wage growth and inflation as important factors in the revised economic forecast.
The IFO’s June estimate of 3.8% annual growth for real GDP was revised up to 4.1%, while wages paid went from 6.4% to 8.2%. The Philadelphia Consumer Price Index’s estimated growth of 2.7% for 2022 was now revised up to 3.9% growth.
IFO estimated for job gains went from an increase of 100,000 for 2021 to 116,000, though Pennsylvania remained about 294,000 jobs below pre-pandemic levels in the fourth quarter of 2021. Knittel said there were about 358,000 fewer workers in the labor force (employed and unemployed) in December than in 2019.
Payroll employment for “transportation-storage” and “professional and technical” were the only two job categories to show growth when compared with pre-pandemic 2019 levels. In December, the former was up 7% from 2019, while the latter was up 2.8%.
Temporary employment services and nursing and residential care occupations both declined throughout 2021, with temporary employment services down 32% from 2019 and nursing and residential care down 16%. Data from the U.S. Census Bureau showed employment is down across all age groups in Pennsylvania when comparing the first quarter of 2021 with the same time in 2019.
The IFO noted the recent rapid inflation in durable goods, which accounts for about 10% of the Philadelphia Consumer Price Index. Year over year growth for several items were up double digits, including a 38.1% increase for used cars, 37.4% increase for gasoline, 25.1% for energy and 22.4% for new cars.
Housing, which accounts for one-third of the Philadelphia Consumer Price Index, was up 4.3%, while all items on the index were up a total of 6.6%, a figure that’s steadily increased from 1% in February 2021.
While the IFO cited higher than anticipated inflation and tax collections as major reasons for the revised increase in revenues, other factors also are likely contributing, Knittel said.
IFO economists believed more consumers would shift from spending on durable goods to services, which hasn’t happened, while the stock market and housing market has remained stronger than anticipated, he said.
Knittel also believes “it’s likely more stimulus money made its way into the economy.” Original surveys predicted about 25% of stimulus funds would be spent and roughly 75% would be saved or go to pay down debt.
IFO officials now believe about two-thirds of the stimulus funds were spent, perhaps increased because of a student loan moratorium, the lack of an anticipated rental eviction tsunami and the extension of SNAP benefits.
This article was originally posted on Revised economic forecast shows higher revenue estimate for Pennsylvania