Revenue dip may just be a timing issue
(Calif.) A multi-billion slide in tax collections last month is most likely the result of a twist in the calendar rather than a signal that the state economy is slowing.
Revenues for the first seven months of the fiscal year are nearly $2.5 billion short of expectations, the governor’s Department of Finance reported Tuesday. And for the month of January, collections were $2.8 billion short.
While some analysts continue to fret that a recession may be looming, as far as the dip in state collections are concerned, there is strong evidence that changes in the federal tax law might be the root cause.
H.D. Palmer, spokesman for the finance department, said in an email Tuesday that taxpayers in 2017 had an incentive to pay a big part of what they owed before the end of the calendar year because of changes in the federal tax code. In 2018, that incentive didn’t exist.
Palmer said that changes in tax law might also prompt investors to pay a bigger share in April, instead of January. As a result, the office is expecting April payments to come in stronger than the current forecast and possibly recover what seemed to have been lost in January.
Fears of a downturn that fueled market turmoil in December seemed to have subsided with the Standard & Poor’s 500 returning to within a couple hundred points of the all-time high.
The first round of corporate earnings reported much better news than many had expected, a nearly 70 percent of companies beat projections.
That said, there remain significant headwinds related to the U.S.-China trade war, the uncertainly surrounding Brexit and the potential for interest rate increases late this year.
For California, some numbers remain positive, the Department of Finance reported:
- The unemployment rate increased 0.1 percentage point to 4.2 percent in December—only slightly higher than the historic low of 4.1 percent recorded in September through November. For the U.S., the unemployment rate rose 0.2 percentage point to 3.9 percent in December before increasing 0.1 percentage point to 4.0 percent in January.
- California added 24,500 non-farm jobs in December, which followed a gain of 25,700 jobs in November. Monthly job gains averaged 23,700 in 2018 and 30,500 in 2017. Year-over-year, non-farm payrolls expanded by 1.7 percent in California compared to 1.8 percent in the nation.
- California’s residential building permits totaled 96,000 units in December, up 0.6 percent from the prior month, but down 22.9 percent from the previous year. Permits for single-family housing fell 26.9 percent from November to 40,000 units, while permits for multifamily housing increased 37.4 percent to 56,000 units.