President Joe Biden likes to brag about the masterful job he’s doing managing the nation’s economy. Earlier this month, Mr. Biden referred to “our historic economic progress” under his administration. “Historic?” Not even close.
Gross domestic product grew at an annual rate of only 1.3% in the 1Q of this year, down by half from growth of 2.6% in the 4Q of last year. Most forecasters expect GDP growth to slow even more in the second half of this year, and predictions of a recession are still widespread.
But while the economy as measured by GDP remains in mildly positive territory for now, federal tax revenues are plunging. Revenues in the first eight months of this fiscal year (which began in October) are down $380 billion compared with the same period last year.
Take receipts in April of this year, for example. The Treasury took in $638.5 billion in April. That was more than double the receipts in March. This is to be expected as the government collects a large amount of tax revenue in April as people send in their income taxes.
But compared to April 2022, tax receipts were down 26.1%. That plunge in revenue pushed the April budget surplus down by 43% compared to last year’s. Falling tax receipts are a big problem for a government that continues to spend around half a trillion dollars every single month.
The Treasury Department reported earlier this month that the federal deficit for this fiscal year has already topped $1 trillion, and that’s due to the sharp reduction in federal tax revenues from last year.
By the end of May, cumulative deficits for fiscal year 2023 hit $1.165 trillion. The projected deficit for the entire year is now close to $1.6 trillion, which is $300 billion higher than Treasury projected at the start of this fiscal year.
It was this sharp drop in tax revenues that forced Biden to open negotiations with Republicans over the debt ceiling, because Treasury realized it was fast running out of money to pay its bills.
The revenue shortfall is largely the result of a steep decline in individual income taxes. So far, income taxes have brought in only $1.5 trillion, compared with $1.9 trillion over the same period last year.
Meanwhile, corporate income tax receipts are flat compared with last year, which also doesn’t make sense in a “strong” economy – particularly after Biden imposed a 15% corporate minimum tax that was supposed to squeeze more dollars out of big companies. Thus far, it hasn’t worked very well.
So, it remains to be seen if federal tax revenues will continue to fall, or if they will stabilize and begin to recover. Since I’m not expecting a recession this year, I tend to lean toward the latter, but I’m not optimistic. Time will tell, of course.
Retail Sales Expected To Rise Healthy 4%-6% This Year
The National Retail Federation (NRF) just unveiled its 2023 forecast, and they predict good things are in store for the nation’s online and brick-and-mortar retailers this year. They are NOT predicting a recession later this year like so many other forecasters.
During its third annual “State of Retail & the Consumer” report, the retail trade association expects retail sales to grow by a healthy 4% to 6% this year, hitting between $5.13 trillion and $5.23 trillion. This positive sign for retailers follows 2022’s 7% annual growth over 2021, with retail sales reaching $4.9 trillion. And while 2023’s growth will be lower than 2022’s, the forecast is above the pre-pandemic average annual retail sales growth rate of 3.6%.
E-commerce will also have a banner year in 2023, with sales projected to rise 10% to 12% increasing between $1.41 trillion and $1.43 trillion. (Online sales are factored into the overall growth noted above.)
But post-pandemic, e-commerce has shifted from a stand-alone sales phenomenon to being one part of consumers’ shopping experiences. According to the NRF, “While many consumers continue to utilize the conveniences offered by online shopping, much of that growth is driven by multichannel sales, where the physical store still plays an important component in the fulfillment process. As the role of brick-and-mortar stores has evolved in recent years, they remain the primary point of purchase for consumers, accounting for approximately 70% of total retail sales.”
So for consumers, their ideal retailers offer in-store and online shopping and provide a seamless experience, meaning they can buy online and return in-store and vice versa. This echoes the findings of a survey from Momentive, a market research platform, which says the future of retail is “hybrid” of online and in-store sales. Key findings from a Momentive study show:
- 56% of adults prefer to shop both online and in-store
- 88% say it’s important for a business to have in-store and online purchase options
- 24% are less likely to purchase online from a business that doesn’t also have a storefront.
The bottom line here is: None of this suggests a recession later this year as so many forecasters predict. I’ve been saying all year that a recession is NOT the most likely scenario for the US economy this year. Statistics like these from the NRF continue to bear me out.
Sorry, comments are closed for this post.