- Atlanta Fed Now Predicts 3.8% GDP Growth For 3Q
- Government Collects Record Income & Payroll Taxes
- Americans’ Mobility — Lowest on Record, Especially Rural
- Household Debt Hits Another Record High in the 2Q
As I discussed at length last week, the US economy is gaining momentum. The Federal Reserve Bank of Atlanta estimates that GDP is growing at an annual rate of 3.8% in the current quarter. That’s well above most economists’ forecasts, as I will discuss below.
On the other hand, the Federal Reserve Bank of New York estimates that 3Q GDP growth is expanding at the rate of only 2.1%, which is even lower than the 2.6% 2Q rate reported by the Commerce Department. So what gives? I’ll give you my thoughts as we go along today.
The Treasury Department reported last week that it has collected record amounts of individual income taxes and payroll taxes in the first 10 months of fiscal year 2017, which began last October. This is more good news for the economy.
But not all the news is good. Americans’ mobility rate – the willingness to relocate to find better jobs, etc. – has fallen to a new record low. This is especially true in rural America. I’ll offer some thoughts on this concerning trend below.
Finally, US household debt hit yet another record high in July. While some economists say this is a good thing, I’ll argue to the contrary as we go along today. It’s a lot to cover in one letter, so let’s get started.
Atlanta Fed Now Predicts 3.8% GDP Growth For 3Q
The Federal Reserve Bank of Atlanta now predicts that the economy is growing at an annual rate of 3.8% in the 3Q based on its latest “GDPNow” model. The latest forecast shown below is considerably more optimistic than the average of forecasters tracked by Blue Chip Economic Indicators. The average of Blue Chip’s top 10 and bottom 10 forecasters has the economy growing by only 2.7% (annual rate) in the current quarter.
The Atlanta Fed’s GDPNow index is based on strength or weakness in 13 sub-components of the economy. This relatively new forecast from the Fed has had a tendency to be overly optimistic in the last year or so since I’ve been following it. My bet is that it’s overly optimistic again this time, but we won’t know until we get the Commerce Department’s first estimate of 3Q GDP at the end of October.
As I emphasized in last week’s E-Letter, the economy is improving, but I doubt it has improved to a rate of 3.8% growth as suggested above. Interestingly, the Federal Reserve Bank of New York recently introduced a similar current GDP estimate which it refers to as “Nowcast.” The New York Fed says its Nowcast estimate is based on a “wide range of macroeconomic data.”
The latest Nowcast had GDP growing by only 2.1% (annual rate) in the current quarter as of last Friday.
The New York Fed Staff Nowcast
Obviously, there is a big discrepancy between the NY Fed’s forecast of 2.1% and the Atlanta Fed’s forecast of 3.8%. In fact, if the NY Fed’s 2.1% is accurate, that means economic growth has actually slowed from the 2.6% GDP growth in the 2Q. We get our next 2Q GDP estimate from the Commerce Department late next week.
Since the NY Fed Nowcast has only been in existence for a few months, I can’t say whether it has a bias one way or the other. However, it is my opinion that the economy has strengthened this summer, as I discussed in detail last week. It may well be that the Atlanta Fed’s 3.8% is too high and the NY Fed’s 2.1% is too low.
It could well be that we see our first quarterly GDP report above 3% since the 1Q of 2015. Keep in mind that the initial report from the Commerce Department for the 3Q will not be out until late October. In the meantime, we’ll get the government’s second estimate of 2Q GDP late next week. I’ll have more analysis after that report is released.
Government Collects Record Income & Payroll Taxes
Here is another bit of news which supports the view that the economy is strengthening. The Treasury Department reported last week that the federal government collected record amounts of both individual income taxes and payroll taxes through the first 10 months of fiscal 2017 (Oct. 1, 2016 through the end of July).
Through July, the federal government collected apprx. $1.313 trillion in individual income taxes. At the same time, it collected over $976 billion in Social Security and other payroll taxes.
Prior to this year, fiscal 2015 held the record for individual income tax collections through July. That year, the Treasury collected $1.309 trillion (in constant 2017 dollars) in individual income taxes in the first 10 months of the fiscal year.
Source: Treasury Department
This year’s record of $1.313 trillion in October-to-July individual income taxes is apprx. $4 billion more than 2015’s previous record of $1.309 trillion.
Before this year’s record of $976 billion in October-through-July payroll tax collections, fiscal 2016 held the previous record at $949 billion (in constant 2017 dollars) -- or about $27 billion less than this year.
Overall federal tax collections in the first 10 months of fiscal 2017 were $2.740 trillion.
While the Treasury has been collecting record amounts of individual income taxes and payroll taxes this fiscal year, some other categories of federal tax revenues have declined since 2015. These include lower corporate income taxes, customs duties and excise taxes.
Even as it was collecting record individual income and payroll taxes in the first 10 months of fiscal 2017, the Treasury still ran a deficit of $566 billion as of last month. That is because while the overall federal tax collections for the period were $2.740 trillion, overall federal spending was $3.306 trillion.
The Congressional Budget Office projects that the federal budget deficit for all of FY2017 will be $693 billion, up from $585 billion in FY2016. The largest annual budget deficit ever occurred in FY2009 at $1.413 trillion following the Great Recession.
Finally, the fact that individual income taxes and payroll taxes set new records for the first 10 months of this fiscal year is yet another sign that the economy is gaining momentum.
Americans’ Mobility -- Lowest on Record, Especially Rural
So much for the good news on the economy. This and the next topic below are not good news.
Americans are less mobile today than at any time since records have been kept, and researchers aren’t absolutely sure why. This trend of staying put has been increasing rapidly since the 1980s, and it includes virtually all age groups.
The decision to relocate reflects something very fundamental about one’s life. People move for better jobs, for marriages, for a different climate, for new and different social networks or sometimes just to shake things up. Or at least they used to.
Americans traditionally have thought of themselves as the “great movers,” and indeed that was true in the 19th century and even through most of the 20th. But