Governor Northam announced two pieces of positive economic news for the Commonwealth last week as the state released March revenue figures showing continued growth in the state’s major revenue sources, as well as updated unemployment statistics reflecting progress in regaining jobs lost to the pandemic. State and national figures suggest that the economy continues to improve.
Total General Fund (GF) revenue collections grew by 18.5 percent in March; although some of the increase is due to an additional deposit day for income tax withholding deposits (which will be made up by the accompanying loss of a deposit day in April), major state revenue sources continue to perform well overall. Total GF collections have increased by 9 percent on a fiscal year-to-date basis, outpacing the forecast of 3 percent growth. On a fiscal year-to-date basis, individual income tax withholding collections have grown by 3.7 percent relative to the same period last year (2.7 percent growth was forecasted in this revenue source). Nonwithholding collections have grown by 26.1 percent on a year-to-date basis, well ahead of the forecasted 4.4 percent increase. Sales tax collections continue to demonstrate strength, increasing by 8.1 percent in March and growing by 6.9 percent on a fiscal-year-to-date basis. Similarly, recordation taxes, buoyed by low interest rates, have grown by 40.6 percent on a fiscal year-to-date basis, well ahead of the projected 24.4 percent growth.
Virginia’s seasonally-adjusted unemployment rate fell to 5.1 percent in March. Although this rate is still 2.5 percentage points above the rate in March 2020, it demonstrates a significant improvement relative to the April 2020 peak of 11.3 percent. The Virginia Employment Commission notes that March’s largest job gains were in the professional and business services sector, followed by manufacturing; the largest job losses were in trade, transportation, and utilities, followed by leisure and hospitality. Government employment levels were largely unchanged (with 200 job losses in state and local government counterbalanced by 200 job gains in the federal government). VEC estimates that Virginia experienced 182,000 job losses between March 2020 and March 2021, reflecting a decrease of 4.5 percent. The largest job losses in this year-to-year comparison were in leisure and hospitality (down 76,600 jobs, or 18.8 percent), followed by government, with local government employment representing losses of 30,700 jobs and state government employment shedding 7400 jobs (federal government employment increased by 1300 jobs).
National figures appear to demonstrate a similar trend of improvement towards returning to pre-pandemic levels of employment. The Bureau of Labor Statistics, in announcing that the national unemployment rate dropped to 6 percent in March, pointed out, “The rate is down considerably from its recent high in April 2020 but is 2.5 percentage points higher than its pre-pandemic level in February 2020. The number of unemployed persons, at 9.7 million, continued to trend down in March but is 4.0 million higher than in February 2020.”
The Federal Reserve’s Federal Open Market Committee maintained a position of caution during its March meeting, recommending keeping the current target range for the federal funds rate of zero to one-quarter percent and indicating that it expects to retain this rate until labor market conditions improve and inflation rises to 2 percent and is on track to exceed this rate “for some time.” The Committee summarized its view of the economic situation in its post-meeting statement: “Following a moderation in the pace of the recovery, indicators of economic activity and employment have turned up recently, although the sectors most adversely affected by the pandemic remain weak…The path of the economy will depend significantly on the course of the virus, including progress on vaccinations. The ongoing public health crisis continues to weigh on economic activity, employment, and inflation, and poses considerable risks to the economic outlook.”
VACo Contact: Katie Boyle