The state’s latest economic figures show little change from what was measured in the February forecast. The state of Minnesota collected slightly lower than expected revenues, and the U.S. economy is expected to grow at a lower rate in 2016, according to a quarterly report from Minnesota Management & Budget (MMB).
MMB’s April Revenue and Economic Update finds that state revenues during February and March were $11 million, or 0.5 percent, lower than projected in the recent February forecast. The largest portion of these lower than expected revenues are due to lower income tax receipts. MMB notes though that this is likely more a matter of timing, not an indication of a broader reduction in revenues.
The U.S. economy is showing some positive signs, like lower unemployment and higher labor force participation. However, several factors, including weak global economic growth and a struggling manufacturing sector, are contributing to lower projected national economic growth this year. That contributes to an expectation of slightly lower economic growth in the short term, but then economic growth is back on track with earlier projections in 2017 and beyond.
The economic forecasters are fairly confident in their projections, and assign a 65 percent probability to their baseline economic forecast. They give a 20 percent chance for a more pessimistic scenario in which a slow global economy and very low business and consumer confidence trigger a short recession; and a 15 percent chance that the economy will be stronger than the baseline prediction, due to better than anticipated productivity, household formation and foreign growth early this year.
The February forecast brought good news for Minnesota, projecting a $900 million positive balance for the remainder of FY 2016-17 and a $1.2 billion surplus for FY 2018-19. As policymakers make tax and budget choices this session, the projected surpluses provide the opportunity to make investments so that more Minnesotans can participate in the state’s economic growth.
But today’s economic update also serves as an important reminder that economic projections fluctuate. Lawmakers should make sure their choices this year are sustainable – which rules out passing phased in tax cuts whose cost grows over time.