Thursday’s news included a story about a concern in Harrisburg over the fact that revenues coming into the treasury have fallen over a half billion short of the budget forecast amount. The shortfall is attributed primarily to slower than expected income tax collections.
The slower income tax collections are undoubtedly traceable to the weak job gains overall and in the private sector particularly. Overall non-farm (includes government) jobs are up only 17,200 or 0.3 percent while private sector employment has risen 0.4 percent or 27,000 over the past year. The slow pace of job growth dates back well over a year. But, it is not just the slow rate of employment gains that create the weaker than expected income and income tax collections. A major contributor to the sluggishness is the industry mix of the job growth. Half of the increase in private sector employment over the last twelve months has been generated in the leisure and hospitality sector. A large share of that sector’s jobs is in food services, a very low paying industry.
Moreover, goods production, especially manufacturing with its very good wage rates, has been flat to down. Note too that health and education, which have been major drivers of job growth, have slowed dramatically. Indeed, college employment is down by 6,000 jobs over the last twelve months.
In short, with very weak job gains and an adverse mix of jobs being created in terms of wages paid, one should not be overly surprised at the income tax revenue coming in below projections.
