Friday, July 17, 2009

Accelerating tax revenues to Treasury indicates growth picking up

The chart below is very instructive. It shows the percentage increase in daily tax revenues to the Treasury (measured against the first day of the month).

July's revenue flow has been above that of June. This is a sign that things are improving.

With corporate profits coming in above expectations expect higher receipts to flo into the Treasury. This will have the added impact of shrinking the deficit. That is something we don't want to see happen, but it is going to happen.

Even so, the important thing now is that it looks as if all the pump priming by the government and the impact of automatic stabilizers, is starting to work. The private economy is, perhaps, beginning to grow again and if so, it will be self-sustaining at least until fiscal drag from a declining deficit reaches a level where further growth cannot be sustained.

But with personal savings at record (nominal) levels, household balance sheets markedly improved over 2007 and no prospect of higher interest rates anywhere in sight, this rebound can go on for quite some time.

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