Powell calls on the Fed to continue helping the economy
Fed Chairman Jerome Powell is quelling fears that the Fed may withdraw some of its support for the U.S. economy, stressing that any pullback will be signaled well in advance. (January 14)
LANSING – The coronavirus pandemic could permanently change the economies of the United States and Michigan in ways that will have unknown impacts on future state tax revenues, economists told state officials during of a conference on income estimation on Friday.
The pandemic is accelerating the shift from physical retail to online sales, which is negatively impacting employment. It depresses business travel, which impacts car rentals and auto sales, and could particularly impact Michigan if the shift to online meetings continues after the pandemic ends. . And it is hurting city centers and the value of office buildings, which would impact property tax revenues, if the phenomenon of working from home continues after the virus is gone.
On these issues, “it is too early to tell, but it is definitely something to watch out for,” State Treasurer Rachael Eubanks said after the conference.
What was determined at the conference – which involved the treasurer, the budget director, and key lawmakers and officials from both legislative tax agencies – was that there was a lot more money in state coffers than officials had only expected it in August.
But that doesn’t mean Michigan’s economy – or the state budget – is in good shape, officials said.
The combined income of the general fund and the school aid fund for the 2021 fiscal year which began on October 1 is up $ 1.2 billion from officials’ estimates in August, but still down by about 2% compared to August.
Future growth will be significantly influenced by how quickly and efficiently coronavirus vaccines are deployed.
Employment fell during the coronavirus pandemic that began in March, but mainly due to federal stimulus checks of $ 1,200 and federal supplements of $ 600 per week to state unemployment insurance checks, personal income and retail spending increased.
There has been a huge shift in spending from services, which are generally not subject to sales tax, to goods, which are taxable. It also helped state revenues.
Following: Michigan budget not as bad as Whitmer predicted, agency reports
Following: Michigan business owners and economists optimistic about state recovery in 2021
Unemployment checks are taxable income and withholding tax on unemployment checks climbed to $ 557 million in fiscal 2020 – more than four times the level of annual collections during the last recession, officials said. More than $ 200 million in jobless deductions are expected in FY2021, down sharply from 2020 but still well above normal, and officials said state revenue could further increase thanks to new federal stimulus packages announced by the administration of President-elect Joe Biden. but not yet approved by Congress.
Yet looking at the global economy, “we are in a deep hole right now,” and a “multi-year recovery process is needed,” Eubanks said.
Permanent economic changes due to the pandemic could complicate this recovery.
For example, business travel could be permanently reduced as many companies have successfully adapted during the pandemic to holding most online meetings, said Joel Prakken, chief US economist at IHS Markit, an international company based in London.
Meeting remotely “in most cases it’s perfectly fine and is significantly cheaper than the old model,” Prakken said.
“I’m not sure business travel will return to pre-pandemic levels anytime soon.”
This could have a negative impact on car rental companies and car sales in general, he said.
In another sector, the shift that was already happening from retail brick-and-mortar purchases to online shopping accelerated during the pandemic, said Gabriel Ehrlich, director of the quantitative economics research seminar at UM.
Economists said working from home could also reduce demand for offices long after the pandemic is over.
Michigan’s economy is still strongly tied to the fortunes of the auto industry, although not the same as before.
Nationally, auto sales are expected to fall 15% in 2020, to 14.4 million car and light truck sales, from 17 million in 2019. Sales are expected to improve to 16.4 million this year and reach 16.8 million in 2022 and 17.2 million. in 2023, according to economists at UM.
Sales of the Big Three, which have the most impact on Michigan, are expected to fall 17% in 2020, to 5.8 million units from 7 million in 2019, according to UM. These sales are expected to reach 6.6 million units this year and 6.8 million units in 2022.
The relatively rapid rebound in car sales this year is one reason – along with the hefty doses of federal stimulus – Michigan’s tax revenues haven’t declined as much as expected, said David Zin, chief economist at the Senate Tax Agency.