Post #1316: The universal state budget surplus of FY 2021 and the economic boom of FY 2022.

Posted on November 6, 2021


In Post #G21-058, I stumbled across an interesting finding.  More-or-less every U.S. state had a large (often record) budget surplus for FY 2021.  As far as I can tell, this has gotten exactly zero notice in the popular press.

Reading a few reports of these surpluses, it seems like various sources of state tax receipts started to pick up around April 2021 and just haven’t quit since.  And nobody is quite exactly sure why, although the obvious suspect is all the spending power that the Federal government injected into the economy over the past 18 months.

Now here’s the weird thing, and the main conclusion that I’ve drawn so far:  We seem to be in a genuine economic boom.  I keep looking for signs that revenue growth will be petering out, now that we’re reaching the end of the pandemic.  But there’s no sign of that in sight.

At some level, it shouldn’t be a surprise.  The Federal government has just gotten through two years of the largest peacetime economic stimulus in U.S. history.  A good chunk of that was simply saved, presumably to be spent later.

And now, with all that free money burning holes in many pockets, the result is just standard Keynesian economics.  There’s a whole lot of new economic activity, with a side-order of inflation.

But you’ll have to judge for yourself.  As I say, this started out as a study of state budgets, and rapidly turned into an analysis of just how rapidly the U.S. economy seems to be heating up.

U.S. Treasury Revenues are clearly up.

Let me start with the most stable source of timely national information on economic activity that I know of:  The Monthly U.S. Treasury Statement.  If somebody’s making money from it, it’s a good bet that Uncle Sam is taxing it.  So, putting aside the big lump of revenue that arrives at tax time, Federal receipts provide a pretty good estimate of the pace of economic activity.

Source:  My plot, of data taken directly from the U.S. Monthly Treasury Statement.

No matter which perspective you take — two decades, or five years — we have clearly entered a period of rapid growth in U.S. Treasury receipts.

Flash GDP estimates are running to double-digit growth.

These get a little murkier, as they are no longer hard data, but are estimates from somebody’s economic model, fed by current data.  For this, I’m relying on the Atlanta Federal Reserve’s GDPNow estimate.

“The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2021 is 8.5 percent

They also note that their model is well above the “blue chip consensus forecast” of real GDP.

Virginia’s general fund revenue numbers are running 10 to 15 percent above the same period last year.

Source:  Virginia monthly revenue letter, September 2021.

And, from what I can tell by casually checking a few other states, this is not unusual.  Seems like a lot of states have seen broadly-based revenue growth continuing well into FY 2022.

Whether or not state tax receipts will continue to grow is the question of the moment.

The fact that started me on this analysis — the large number of states with record FY 2021 budget surplus — has not gone unnoticed in the academic press.  Of the articles that have focused on this, the Pew Charitable Trust managed to hit the nail on the head.

Awash in Cash, State Lawmakers Ask How Long the Boom Will Last, dated July 26, 2021, by

Here’s a quote that pretty much sums it up:

“The growth trajectory—it’s higher than we expected,” said Adams of Idaho’s Division of Financial Management. “I don’t anticipate that it will continue at this pace. I don’t think anyone does, frankly.”

Kate Watkins, who leads the team that prepares revenue forecasts for the Colorado legislature, said she expects Colorado’s revenue growth to flatten out.

“In many cases,” she said, “we’re still waiting on data to validate what the story is moving forward, whether or not this is really kind of a blip or if it really is a sustainable growth trajectory.”

As I read it, the reason there’s no “smoking gun” is that revenue growth is quite broad-based.  Not only is income tax withholding up, so is sales tax, so are corporate tax payments, and so on.

Basically, we seem to be in the middle of an economic boom.  One that doesn’t seem to have gotten much attention.  But one for which the Federal and State tax data, and the flash GDP estimates, suggest is pretty substantial.

Amidst all the negative press regarding the President, I sure haven’t heard much about the U.S. being in the middle of rapid GDP growth.  The only sign of that has been the steadily falling unemployment rate.

But, as far as I can tell, that appears to be true.  I started out assuming that we were in the middle of some temporary bubble in state finances caused by direct Federal pandemic relief.  But now, that appears to be wrong.  For whatever reason — making up for lost time in the pandemic, spending all that free pandemic money, or who knows why — we’re suddenly in the middle of economic good times.