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Jul 10

Sales Tax Distribution Report & Advice

Posted on July 10, 2017 at 4:32 PM by Paige Worsham

                                                         July 2017
                  
May 2017 Collections - July 2017 Distributions
                                                                Linda S. Millsaps



In July, North Carolina local governments are expected to receive $274.58 million in sales tax distributions, based on May 2017 sales. This is an increase of $16.74 million, or 6.49%, from the same time last year. However, as last year, this is also a decline from the June distribution, in this case approximately $10.17 million statewide.

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We see a similar trend when Articles 43 and 46 are excluded.

This level of continued slow but steady growth reflects what was generally occurring in North Carolina’s economy at the time. In May employers added 18,000 jobs, an increase of 0.4% over the previous month and 1.6% over the previous year. And once again much of this growth came in the form of professional and business services jobs, which tend to be more concentrated in our largest urban centers. Unfortunately, we still have eleven counties with unemployment rates over 6.0%.


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One of the very positive notes in May came from the housing market. Unlike the previous month, building permits increased substantially, showing an improvement of 37.09% over April. This creates a year over year increase of more than 9%, and is more in line with what we generally see in a North Carolina recovery. However, this should be taken with a grain of salt as actual home starts continue to be weak.

As we contemplate the outlook for 2017-18, the future continues to suggest slow, and slowing, economic growth. According to Dr. John Connaughton at UNC-Charlotte, 14 of the state’s 15 economic sectors are expected to see output, or GSP, increase through the end of 2017, and potentially into 2018. The one sector that is likely to see actual declines is durable goods manufacturing. We will also likely see only limited growth in the areas of education, health services, agriculture, and government.

Similarly Dr. Mike Walden’s Index of North Carolina Leading Economic Indicators for June suggests “a modest improvement in the overall state economy in coming months, which is similar to most forecasts for the national economy. While rapid economic growth is not suggested, slow steady gains are the most likely future path.”

A potential caution relates to some slippage in the area of consumer confidence. As the graph below from the University of Michigan highlights, June showed a weakening in consumer sentiment. This seems to be driven by some concern that business friendly legislation may not pass Congress this year. That is somewhat counterbalanced by generally solid personal income numbers (at the national level) and a boost related to lower fuel prices. While we should continue to watch these numbers, as they are a key indicator of potential consumer spending and therefore sales tax revenues, there is currently only a need to be aware, but not yet concerned.

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While the statewide picture continues to suggest continuing but slow growth on average, the impact on individual counties will vary significantly. New research from Dr. Walden really brings this home. In a new paper Walden suggests that North Carolina has experienced a significant decline in per capita income, as compared to the nation as a whole, which started in 1997 and has now grown more substantial. He attributes this relative decline, which he terms a “U-turn,” to the elimination of middle income jobs. These job were traditionally in rural and durable goods manufacturing areas. At a state level this is countered somewhat by an increase in higher paying technology, finance, and science-related jobs, and the associated low wage jobs that often support higher wage workers, often found in more urban settings.

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