University of Illinois Flash Index dips in July

August 1, 2017

University of Illinois Flash Index dips in July

Measurement of economy complicated by change in income tax rate

Authors

The change in Illinois’ income tax rates during July resulted in unusual complications in determining the University of Illinois Flash Index for the month. The index finished the month at 104.3, down only a tenth of a point from June.

The July reading marked the second straight month of decline for the Flash Index, which has measured economic activity in the state monthly since 1981. However, the index has been in the 104-105 point range for the past 12 months. Any reading above 100 indicates economic growth in the state. View the full Flash Index archive.

“The index is constructed using the three major state tax sources that are available on a monthly basis -- the individual income tax, the corporate tax, and sales tax revenue -- a proverbial three-legged stool,” said economist J. Fred Giertz, who compiles the index for the university’s Institute of Government and Public Affairs. “Because of the recently approved increases in the individual and corporate tax rates, July’s revenue from these two sources provide little information about the performance of the economy.”

The increases in personal and corporate income tax rates weren’t finally approved until Gov. Bruce Rauner’s veto of the revenue bill was overridden by the Illinois General Assembly on July 6. That meant the Illinois Department of Revenue was not able to issue new withholding schedules until mid-July.

“The result is that July revenues are an unknown mixture of the two rates,” Giertz said. “So to determine the index, the three-legged stool has to be balanced on the one remaining leg -- sales tax collections -- with the help of additional information about employment and unemployment in Illinois.”

The Illinois unemployment rate rose very slightly to 4.7 percent from 4.6 percent the previous month. This remains the second lowest since the 2007-2009 recession. The national economy continues to expand at a moderate rate with a 2.6 percent growth rate for the second quarter. The expansion since the end of the recession has been slow by historical standards, but it has been unusually long.

While the tax increases alone will not solve Illinois’ long-term fiscal problems, they will certainly reduce the economic uncertainty, which should be a plus for the economy, Giertz said. Sales tax receipts in July were virtually unchanged from the same month last year after adjusting for inflation.

Normally, 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 July 31, 2017.


Research Area: Economic Policy

Policy Initiative: Flash Index

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