Iowa’s economic indicators dip in June

Iowa's economic indicators dipped – one-half of 1 percent – In June, the second decrease after 19 months of increases, the Iowa Department of Revenue reported Aug. 1.

Also Monday, the Legislative Services Agency reported a decrease in general fund revenues in July, but chalked much of that up to a change in state law redirecting some tobacco revenue to a new Health Care Trust Fund.

As a result of the law requiring the first $106 million of cigarette and tobacco revenue be deposited on the trust fund, general fund revenues were off 14.1 percent, the LSA reported. Not including the cigarette/tobacco tax issue, net general fund receipts on a cash basis were down 8.8 percent in July.

Also, LSA said July 2011 total tax refunds were $29 million higher than July 2010. A majority of the difference is due to large corporate income tax refunds, a portion of which is due to tax credits being claimed earlier than last year, according to Jeff Robinson and Shawn Snyder of the LSA.

Personal Income Tax revenue received totaled $216.9 million, an increase of $13.1 million (6.4 percent) compared to July 2010.

Major sources of tax revenue and their contribution to the July fiscal year 2012 change include:

• Sales/use tax (positive $3.7 million, 2.9 percent)
• Corporate tax (negative $1.7 million, – 6.9 percent)
• Other taxes (negative $16.0 million, – 53.2 percent)
• Other receipts (negative $9.8 million, – 35.6 percent)
• Tax refunds not including school infrastructure refunds (negative $29.0 million)
• School infrastructure sales/use tax refunds (negative $6.5 million)

The revenue department said Iowa Leading Indicators Index remained at 104.8 (100=1999) in June 2011 with the one-half of one percent decline from May rounding to the same value in both months.

Three of eight indicators – agricultural future, diesel fuel consumption and unemployment insurance claims contributed positively, the department said. New orders index, average weekly manufacturing hours, the Iowa stock market index, the national yield spread, and new residential building permits were the negative contributors.

With the release of the two reports, the Public Interest Institute in Mount Pleasant advised lawmakers and policymakers should exercise caution in forecasting the direction of Iowa's economy.

The leading indicators provide the Revenue Estimating Conference data for projecting state tax collections and how much money will be available for the budget. If, for example, non-farm employment is expected to increase, then tax collections can be expected to go up and money available to the state for spending on government needs and wants should increase.

The fact leading that the Leading Indicators Index has shown growth out of the recession has lured the REC into projecting growth in the state tax collections, said Deborah Thornton, a research analyst with the interest. Its last three projections have increased – $5.9 billion, to $6 billion, to $6.1 billion. However, at the same time, unemployment claims are up, and hiring and employment growth are lackluster. Job destruction has slowed, but strong job creation has not happened, according to the Federal Reserve, Thornton said, and gasoline prices are at record highs.