The January Economic Update from Minnesota Management and Budget shows state revenues are coming in above expectations and the outlook for the economy is looking up.
State revenues for November and December 2013 came in $172 million higher than projected by the recent November Forecast. This came mostly from higher income tax collections. The state also had higher-than-expected sales tax collections due to increased economic activity. Additionally, these sales tax collections only include the beginning of the Christmas shopping season, so we might continue to see increased sales revenues.
The update cautions that the increased income tax collections might be due to some individuals paying taxes early, so overall collections may not be improved, so much as coming in early.
The U.S. economic outlook is now improved over the November Forecast. The recent federal budget deal eliminates the risk of another government shutdown and lessens some of sequestration’s effects. The national economy also grew faster in the third quarter of 2013 than the November Forecast predicted – 4.1 percent growth in GDP, which is the fastest rate since 2011. Economic growth is expected to continue through 2014, which will reduce the national unemployment rate to near 6 percent by the end of the year.
Forecasters continue to assign a 60 percent probability to this baseline economic forecast, and a 20 percent probability to more pessimistic and optimistic scenarios.
The pessimistic scenario would occur with “unwarranted fiscal tightening” in Washington and a worsening global economic crisis. The more optimistic scenario includes a stronger housing recovery and employment growth, which would help the recovery.
Our next look at the state’s revenues and spending will come next month with the February Forecast, which is what policymakers will use as the baseline for any tax and budget decisions in the 2014 Legislative Session. Stay tuned!