States are seeing sales-tax gains

Slowly, a recovery is setting in. Auto sales in April were up 21% on an annualized basis from a year ago. Tech companies have been reporting improving sales and earnings.

FedEx (FDX) and United Parcel Service (UPS) have reported gains in shipments, especially overseas.

And states are finally starting see what happens when Americans go to the mall and start to spend again. They're getting more revenue.

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The Liscio Report, a newsletter that tracks state tax revenues, says 94% of the states it tracks saw sales tax revenue increase in April from April 2009. That's up from just 18% of states in March.

The average gain was around 2.5%, adjusted for population. That's a big difference from April 2009, when sales were off 8.6%, and April 2008, when sales were down 4.5%.

However, many states are still seeing sales below 2007 and even 2006 levels.

What that means is that March was a good month because sales-tax revenue in any given month reflects activity of the month before.

March benefited from "a perfect convergence of weather, an early Easter, modest improvement in labor market conditions, and assorted federal programs supporting consumption," wrote Philippa Dunne and Doug Henwood, who run the newsletter.

Using this logic, May sales-tax reports should be decent as well. Car sales will be a factor. So will spending that results from an uptick in home sales in April as buyers rushed to qualify for big tax credits.

What happens after May is not yet clear.

There are some indications in industrial production that the economy has slowed some in recent months. The report cites a small April decline in the Ceridian-UCLA Pulse of Business Index, which follows sales of diesel fuel around the country. Diesel usage, it appears, tracks industrial production trends very closely.

Railroad freight traffic has been higher so far in 2010 compared with 2009, according to the weekly Railfax report from Atlantic Systems. Even two freight categories closely aligned with housing -- crushed stone and lumber and wood products -- are showing gains.

Overall freight traffic, however, is still still below 2008 levels.

Payroll employment ticked upward in April, and there are indications that affluent Americans are spending again, confident they're not going to lose their jobs.

A key question is whether the European debt problem morphs into something really ugly that will affect U.S. businesses that generate large amounts of their sales across the pond.