U.S. economy in 2023: so far, stronger than California budget projections

Majority of projected October tax receipts, however, is tied to 2022 income

Today’s Commerce Department report shows that the U.S. economy “surprisingly accelerated to a 2.4% annual growth rate from April through June,” picking up “from the 2% growth rate in the January-March quarter,” which also was above expectations. As reported by the Associated Press, “companies plowed more money into factories and equipment,” as “increased spending by state and local governments also helped fuel the economy’s expansion.” Consumer spending “slowed to a 1.6% annual rate from a robust 4.2% pace in the first quarter of the year.”

As shown in the chart below, the U.S. economy in 2023 clearly is outperforming the Department of Finance’s May Revision forecast (which was completed in April). The May Revision forecast was the basis for revenue estimates in California’s 2023-24 state budget. Note, however, that the bulk of the $42 billion of state tax revenue projected to be delayed until October due to an IRS deadline extension is related to 2022 personal and business income, not 2023 income.