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Do State Revenue Trends Indicate That A Recession Is Imminent?

By Tyler Durden | 13 December 2016

ZERO HEDGE — A decline in state tax revenue has historically been a reliable leading indicator of impending recessions.  As such, investors/gamblers in the current equity market bubble should probably take note of the new report just published by the National Association of State Budget Officers indicating that state revenues are just starting to decline as funding needs related to massively underfunded pensions, rising education costs, etc. continue to skyrocket.

Despite these variations, there is evidence that many states are seeing softening state tax collections.  General fund revenue growth slowed considerably in fiscal 2016, after fairly robust growth in fiscal 2015.  Revenues were less than budgeted in 25 states in fiscal 2016, the most since the Great Recession.

This revenue slowdown was driven by a number of factors.  All three of the largest sources of general fund revenue had a lackluster performance in fiscal 2016. Personal income tax collections were negatively affected by the weak stock market gains in calendar year 2015, and corporate income tax collections outright declined.  Sales tax growth was also weak, tempered by low inflation and slower growth in consumption of taxable goods and services. In addition, energy-producing states continued to grapple with the impacts of declining oil and gas prices and declining coal production on their revenue collections. Most states are seeing these weaker revenue conditions carrying into fiscal 2017. At the time of data collection, 24 states reported general fund revenues for fiscal 2017 were coming in below forecast, while 16 states were on target and four states were above forecast.

The combination of declining revenue and soaring costs forced 19 states to slash budgets in FY 2016, the highest since the “great recession”.  Moreover, per the chart below, an uptick in state revenue shortfalls have been a solid leading indicator of all four of the previous U.S. recessionary periods. […]

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