Arizona's recovering construction industry is driving state government tax revenues, with an 18.1 percent increase to last year in what contractors pay on materials in the first two months of the fiscal year.

The Joint Legislative Budget Committee's monthly fiscal highlights report, released Friday, showed overall state revenues were $7.6 million, or 0.6 percent, above the budgeted forecast for July and August.

Retail sales taxes were up 8.5 percent to last year through the first two months. Sales taxes overall - combining retail, contracting, utilities, use and restaurant and bar taxes - were up $27.8 million or 9.2 percent to last year.

"Contracting collections have generally been much more volatile than retail," the JLBC report said. "However, the August increase of 20.0 percent represents the fourth consecutive month of double-digit increases compared to the same month in the prior year."

The construction industry, tied closely to housing, was the hardest hit segment of the state's economy in the 2007-2009 recession, losing half of its jobs and coming to a virtual standstill in house construction.

Recovery in the industry is still a work in progress, as evidenced by Thursday's state unemployment report for August, which showed the construction sector lost 1,900 jobs in August. Despite that decline, the report showed that construction has gained 5,600 jobs in Arizona from August 2012.

Read the JLBC August fiscal highlights report here: View at Google Docs | Download File