The recently released January Revenue and Economic Update gave us somewhat welcome news about the state’s economic and budget landscape. The quarterly report from Minnesota Management and Budget (MMB) showed that recent state revenues have come in above projections, and national economic growth is expected to be slightly higher for the next few years than previously projected.
Some of the top takeaways from the Update include:
1. State revenues are coming in above projections. The state’s revenues for November and December 2017 came in $219 million above projections; that’s 5.9 percent more than projected in the state’s November 2017 Economic Forecast. This is primarily due to higher income taxes received, but some of this may simply be a matter of timing. The Update notes that the tax bill recently passed by Congress likely encouraged some taxpayers to pay taxes due in January in 2017.
2. Slightly higher national economic growth projected over next few years. The national economic forecasters predict 2.7 percent national GDP growth for 2018. Growth projections for both 2018 and 2019 are higher than anticipated in the November forecast. This higher growth is expected to dissipate by 2020 though, in which projections are slightly below the November forecast. The update notes that the faster economic growth is driven by stronger consumer spending and business investment, while the federal tax bill should also have a “modest” impact on economic growth.
3. Unemployment nationally expected to remain low, strong consumer spending expected. Nationally, unemployment in December was 4.1 percent. Unemployment is expected to drop slightly further over the next few years. Consumer spending is also forecasted to be strong, supported by rising wages and other variables.
4. Forecasters are fairly confident in their projections. The forecasters assign a 65 percent chance to their baseline forecast. They also give a 20 percent chance for a more pessimistic scenario and assign a 15 percent probability to a more optimistic scenario.
This week’s Update brings us good news, but there’s still reason for caution. At the federal level, policymakers have proposed serious funding cuts that will make it more difficult for Minnesota to continue to make the investments that strengthen our state and build shared prosperity. In 2017, President Donald Trump and the U.S. House and Senate put federal budget plans on the table that include massive cuts to health care funding, non-defense appropriations, and assistance to low- and middle-income families through the portion of the budget that includes SNAP food assistance, Pell grants, and student loans. Many of these proposals would substantially reduce federal funding to state and local governments, making it more difficult to meet the needs of Minnesotans.
The next look at the state’s fiscal and economic health will be the release of the February Budget and Economic Forecast, which will give us a full picture of state revenues, expenditures and economic projections. The November forecast projected a slight deficit in the current biennium. This week’s update indicates a more positive picture is likely in the February forecast.