The July Economic Update is out! The Minnesota Department of Finance issues these updates quarterly, to give the public a sense of whether state finances are turning out as predicted. A note of caution: this is just an update on revenues. It does not give new expenditure projections for the coming budget biennium. That will be given in the November forecast. The November forecast will provide the revenue and expenditure numbers which will serve as the starting point for the 2009 Legislative Session’s budgeting.
The good news (see MPR’s coverage too): Net receipts for Fiscal Year 2008 are up $389 million (2.5% more) than what the February 2008 Forecast predicted. This is mainly due to higher than expected income tax and corporate tax receipts.
The bad news: The economic outlook for Fiscal Year 2009 has worsened. The February 2008 forecast’s economic predictions for 2009 have turned out to be too optimistic: the economic slowdown is now expected to last through early 2009. A major factor behind the downward revision in the economic outlook is record oil prices. Global Insight, the consulting firm which provided the economic modeling for the state had predicted in February that oil prices would drop to $73 a barrel at the end of 2008. Global Insight now believes oil prices will peak at $160 a barrel which will harm the economy. This could spell higher projected deficits for the upcoming biennium – but we won’t know until the November forecast.
I won’t attempt to prognosticate (much) on the future of the national and state economy. The bulk of the $100 billion in federal tax rebates has been issued – those rebates will certainly have a positive effect on the economy, but it’s unlikely they will turn the ship around (and far more likely that rising oil and food prices will eat up much of the rebate money). National retail sales were disappointingly flat in June, after a small increase in May. On the home front, following the highest unemployment rate in 17 years, Minnesota’s unemployment rate fell slightly in June. Unfortunately, this was only because 16,000 people stopped looking for a job. So the wheel turns…