August U of I Flash Index declined slightly after increasing last month

The U of I Flash Index for August 2023 fell to 102.9 from 103.2 in July. Although still positive, the index is now at its lowest level since May 2021, during the strong recovery from the Covid-induced recession. An Index value of 100 is the dividing line between growth and decline.

“This month’s seemingly negative result may be good news in disguise. A slowing economy is consistent with the goal of a soft landing that the Federal Reserve has been seeking. Recent economic indicators point in this direction with quarter GDP growth revised downward to 2.1% from the provisional reading of 2.4%.”

Inflation continues to moderate at around a 3% rate, still above the Fed’s target of 2%, but much improved from last year. Supply chain problems that characterized the spike in inflation appear to be ending and Federal stimulus programs are waning. Similarly, the job market is cooling, but still strong.

Nationally and in Illinois, unemployment rates remain near historic lows with the Illinois rate at 4.5% compared to the U.S. rate of 4.0%. Receipts in August from Illinois’ major taxes (a component of the Flash Index) were down in inflation-adjusted terms from the same month last year. The recent phenomenal performance of state tax receipts seems now to be a thing of the past with revenues returning to a more normal pattern.

“The expectation of a soft landing rather than a recession is welcome news, but it does not rule out the possibility of a less favorable path given all the uncertainties in the economy and the political sectors which remain volatile.”

The Flash Index is a weighted average of Illinois growth rates in corporate earnings, consumer spending, and personal income as estimated from receipts for corporate income, individual income, and retail sales taxes. These revenues are adjusted for inflation before growth rates are calculated. The growth rate for each component is calculated for the 12-month period using data through August 31, 2023. Since the beginning of the COVID-19 crisis, ad hoc adjustments are still needed because of the timing of the tax receipts resulting from state and Federal changes in payment dates in recent years.

September 1, 2023