State General Fund revenues continued to perform well in August, growing by 18.9 percent. Although this figure is partially attributable to an extra deposit day and August is not typically considered a significant month for revenue collections, the continued trend of growth is encouraging as the state approaches the start of the fall forecasting process. On a fiscal year-to-date basis, General Fund revenues have increased by 5.2 percent, far outperforming the forecast of an 8 percent decline. The state’s main General Fund revenue sources – individual income tax and sales and use taxes – continued to demonstrate solid growth, with individual income tax withholding growing by 9.6 percent on a fiscal year-to-date basis (ahead of the forecast of 1.7 percent growth), and sales and use tax collections growing by 14.3 percent (well ahead of the forecasted 4.2 percent decline).
As noted in Secretary of Finance K. Joseph Flores’s memorandum, September collections, which include estimated payments from individuals, corporations, and insurance companies, will provide a better picture of revenue growth. This information will be factored into revenue models that are then considered as part of the forecasting process. The Joint Advisory Board of Economists will meet October 13, followed by a meeting of the Governor’s Advisory Council on Revenue Estimates on November 22. The Governor’s revisions to the 2020-2022 biennium budget (the “caboose” budget bill) and proposed budget for the upcoming 2022-2024 biennium will be unveiled on December 16 in his presentation to the “money committees.”
The state received another piece of positive economic news last week with the announcement that Virginia’s seasonally adjusted unemployment rate dropped by 0.2 percentage point in August and now stands at 4 percent, 3 percentage points below a year ago and well below the national rate of 5.2 percent. The Virginia Employment Commission reported that job growth in August was in government, miscellaneous services, and leisure and hospitality. On a year-to-date basis, the private sector has gained 97,400 jobs, with the largest growth in the leisure and hospitality sector, followed by professional and business services and trade, transportation, and utilities. The public sector lost 14,900 jobs over the same period. In August, five of the 10 metropolitan areas for which employment data is produced experienced gains (Blacksburg-Christiansburg-Radford; Harrisonburg; Northern Virginia; Roanoke; Winchester/West Virginia); four experienced losses (Charlottesville, Lynchburg, Richmond, Virginia Beach-Norfolk-Newport News, Virginia/North Carolina), and one was unchanged (Staunton-Waynesboro).
Some uncertainty remains about the course of the economy, with the effects of the Delta variant and inflation two major unknowns in economic forecasting. Secretary Flores noted in his presentation to the House Appropriations Committee on September 20 that national employment growth had slowed in August, with only 235,000 jobs added in August (based on revised figures, 1.1 million jobs were added in July and 962,000 in June). The Consumer Price Index rose by 0.5 percent in July and is 5.3 percent above last July, a factor that Secretary Flores indicated warranted close monitoring. Federal Reserve Chair Jerome Powell sounded a note of cautious optimism in remarks on August 27, reiterating his view that recent price spikes are transitory in nature, reflecting increases in “a relatively narrow group of goods and services that have been directly affected by the pandemic and the reopening of the economy” rather than “inflationary pressures…spreading more broadly through the economy.” However, he affirmed the importance of close monitoring of these indicators, noting that “central banks cannot take for granted that inflation due to transitory factors will fade.” In its September 22 statement, the Federal Open Market Committee similarly signaled a view that the economy is strengthening enough to consider winding down certain stimulative policies, indicating that it may begin to slow its bond purchases, provided that “progress continues broadly as expected.”
VACo Contact: Katie Boyle