Commission on Government Forecasting and Accountability
HOUSE
Robert Pritchard, Co-Chair
SENATE
Donne Trotter, Co-Chair
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September 2017 Monthly Briefing

ECONOMY: WILL THE HOUSING MARKET RECOVER AGAIN?
Julie Bae, Pension Analyst/Economy Specialist

The Federal Reserve increased its short-term interest target rate (the Federal Funds Rate) to a range of 1.00% to 1.25% in June 2017. The target rate remains unchanged as of September, but there appears to be one more rate increase later this year. The Fed chairman, Janet Yellen, stated that the economy would continue to expand at a moderate rate and be robust enough to bear both the Fed’s balance sheet normalization program and a higher interest rate. The most recent nonfarm employment, released by the U.S. Bureau of Labor Statistics in September 2017, supports the Fed’s view of the economy, even though the economic growth slowed down slightly in August.

Housing is one of the important factors contributing to the economy. New single-family houses sold are reflective of confidence in the housing market. According to data released by The U.S. Census Bureau and the U.S. Department of Housing and Urban Development, the sale of single-family houses in August surprisingly declined to 560,000 units, the lowest level in eight months and a 3.4% decrease over a revised July reading of 580,000 from an original estimate of 571,000. Although the August data were lower than expected, it possibly reflects the impact of the hurricanes Harvey and Irma.

The housing market has been gradually recovering for almost a decade. Since the beginning of the Fed’s Quantitative Ease (QE) program in December 2008, housing sales have reached above 600,000 units five times. It all happened recently: once in 2016 and four times in 2017, including the March reading of 638,000 in 2017, the highest level among the five times. This long-run upward trend even with some volatility provides a positive signal of an improving housing market. According to IHS Markit’s economic analysis, Dr. Patrick Newport, director of U.S. Economics at IHS Markit, says “why are new home sales still so low by historical standards, when the economy and the housing market, generally appear healthy?…The current pause in new home sales is temporary. The numbers should turn soon.”

REVENUE: SEPTEMBER INCOME TAX GAINS REFLECT RATE CHANGES, FEDERAL SOURCES UNABLE TO MAINTAIN MOMENTUM
Jim Muschinske, Revenue Manager

Base general funds revenues increased $305 million in September. As expected, gains were experienced in income taxes, reflecting the recently-enacted higher tax rates. After being boosted by resources made available via last month’s fund sweeps and interfund borrowing, reimbursable spending slowed, resulting in a poor month for federal sources. September had one less receipting day as the prior year, and early indications are that some receipts may have slipped into the first day of October.
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Excluding the $150 million from interfund borrowing, base general funds grew $1.354 billion during the first quarter of the fiscal year. Increased income tax receipts stemming from the recently enacted higher tax rates, fund sweeps, as well as an increase in federal sources resulted in this significant gain.