The economy in Illinois has slipped into decline for the first time in nearly five years, according to the latest University of Illinois Flash Index. The index, which is the first barometer of the Illinois economy each month, dropped to 98.7 in December. That is a fall of 1.3 points from the November reading.
“It comes as no surprise that the index is clearly in recession territory, reflecting the national and international economic downturn,” said economist J. Fred Giertz, who compiles the Flash Index for the Institute of Government and Public Affairs. “The question now is how low will it fall?”
Sales tax, corporate income tax and personal income tax receipts are the three components of the Flash Index each month. In December, sales tax collections in Illinois were off by 11 percent in real terms from December of last year.
“This reflects both a weak Christmas buying season and the major decline in automobile sales,” Giertz said.
Corporate tax receipts also declined sharply. Surprisingly, individual income tax receipts were up compared to December of last year.
The last time the index was below 100, which marks the division between economic contraction and expansion, was March 2004 when it was 99.5 on an upward trend after falling to a low of 94.2 in May 2002. That was during the wake of the 2001 recession, Giertz said.
“In the aftermath of the 1990 and 2001 recessions, the index fell to the low 90s while the index fell to 85.9 after the more serious recessions of the early 1980s,” he said. “Given the severity of the current recession, the ultimate decline is likely to be nearer the 1980s result as compared to the two most recent relatively mild recessions.”
The Flash Index fell steadily throughout the second half of 2007 and most of 2008, after reaching a high of 107.4 in April 2007.
The Flash Index is a weighted average of Illinois growth rates in corporate earnings, consumer spending and personal income. Tax receipts from corporate income, personal income and retail sales are adjusted for inflation before growth rates are calculated. The growth rate for each component is then calculated for the 12-month period using data through December 31, 2008.
