April Economic Update provides a note of caution

The state’s April Economic Update finds that the outlook for the economy is still one of growth, but slower than previously projected, and that recent state revenues have come in a bit below expectations.

Neither of these are cause for alarm, but they do sound a note of caution that the $1.2 billion positive balance predicted in the February Forecast is a projection, not all money in the bank.

State revenues for February and March 2014 came in $67 million, or 2.5 percent, lower than projected in the February Forecast. While income taxes came in higher than anticipated, sales and corporate taxes fell slightly short. Most of the difference came from reductions in other revenues like cigarette and tobacco taxes and the health care surcharge. This is mostly due to timing issues, which should be resolved by the end of this fiscal year.

The April Update’s outlook for U.S. GDP growth is lower than in the February Forecast. This is due to some temporary factors, like the harsh winter weather. The housing recovery has also not been as strong as expected. The U.S. economy is still expected to grow this year, which should lower the national unemployment rate to about 6 percent by the end of 2015.

Forecasters continue to assign a 60 percent probability to this baseline economic forecast, and a 20 percent probability to more pessimistic and optimistic scenarios. In the pessimistic scenario, the U.S. barely avoids a recession; and in the optimistic one, increases in jobs and earnings lead to a stronger recovery.

This update reminds us of the uncertainty inherent in economic projections and the importance of preparing for the unexpected. The increase to the budget reserve passed earlier this session is a good step in this direction. We also encourage policymakers in the remainder of the session to make sustainable tax and budget decisions that focus on creating a fairer tax system, expanding opportunity and building ladders into the middle class.

-Caitlin Biegler

About Clark Biegler

Clark Biegler is the Minnesota Budget Project's policy analyst.
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One Response to April Economic Update provides a note of caution

  1. Pingback: Daily Brief: Monday, Apr. 14, 2014 - DFL SD 48 ~ Democrats of Southern Minnetonka and Eden Prairie

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