(The Center Square) – Pennsylvania’s Independent Fiscal Office (IFO) released an updated economic forecast for fiscal year 2021-22 that shows higher-than-expected revenues, driven by stronger wages and inflation .
The IFO’s mid-year update for fiscal year 2021-22 showed that general fund revenue was adjusted upward from nearly $42 billion to $45.3 billion, which represents an adjusted growth rate of more than 8%.
The $3.4 billion increase was driven by better-than-expected tax collections, with corporate net income tax up 18% and non-motor vehicle sales tax, 7.8%. These figures are significantly higher than the IFO’s previous official estimate of minus 8.7% growth for net corporate income and minus 0.4% for non-auto sales tax.
The IFO increased the estimate of 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%. Inheritance tax collections were also revised upwards, from 2.3% growth to 18.6%. In dollars, the new estimate is about $773 million more than expected in personal income taxes and about $209 million more in estate taxes.
“What we are seeing for this year is that revenues are significantly exceeding our estimate,” IFO director Matthew Knittel said in a virtual presentation on Monday.
Knittel cited wage growth and inflation as important factors in the revised economic forecast.
The IFO’s June estimate of 3.8% annual real GDP growth was revised up to 4.1%, while wages paid fell from 6.4% to 8.2 %. The estimated 2.7% growth in the Philadelphia Consumer Price Index for 2022 has now been revised to 3.9%.
The IFO estimated that job gains fell from an increase of 100,000 for 2021 to 116,000, although 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-warehousing’ and ‘professional and technical’ were the only two job categories to show growth from pre-pandemic 2019 levels. In December, the former was up by 7% compared to 2019, while the second was up by 2.8%.
Temporary help services and nursing and home care occupations both declined throughout 2021, with temporary help services down 32% from 2019 and nursing and home care in down 16%. Data from the US Census Bureau showed employment is down across all age groups in Pennsylvania when comparing the first quarter of 2021 with the same period in 2019.
The IFO noted the recent rapid inflation of durable goods, which make up about 10% of the Philadelphia consumer price index. Year-over-year growth for several items was double-digit, including an increase of 38.1% for used cars, 37.4% for gasoline, 25.1% for energy and 22.4% for new cars.
Housing, which accounts for one-third of Philadelphia’s consumer price index, rose 4.3%, while all index items rose 6.6% in total, a figure that steadily increased from 1% in February 2021.
Although the IFO cited higher-than-expected inflation and tax revenue as the main reasons for the revised revenue increase, other factors are also likely contributing, Knittel said.
IFO economists thought more consumers would shift from spending on durable goods to services, which didn’t happen, while the stock market and housing market remained stronger than expected, it said. he declares.
Knittel also thinks “it’s likely that more stimulus money has made its way into the economy.” Early surveys predicted that about 25% of stimulus money would be spent and about 75% would be saved or used to pay down debt.
IFO officials now believe about two-thirds of stimulus funds have been spent, possibly increased due to a student loan moratorium, lack of an anticipated tsunami of rental evictions and extending the benefits of SNAP.