DATE: Wednesday, March 4, 2020
TIME: CHANGED to 8:00 a.m.
ROOM CLARIFICATION: Room 413, Stratton Building, Springfield IL
RE: FY 2021 Economic Forecast and Revenue Estimate and Update to 2020 Revenue Outlook
March Monthly Briefing
INTO THE UNKNOWN
Benjamin L. Varner, Senior Analyst and Economic Specialist
With the ongoing COVID-19 pandemic, economies around the world have been thrown into turmoil. Beginning with supply chains originating in Southeast Asia, economic activity has slowed dramatically throughout the world. Many countries have ordered their citizens to limit their movement and their social interactions via “social distancing”. On Friday March 20, Governor Pritzker announced a statewide stay-at-home order that directed residents to remain in their homes as much as possible and banned gatherings of more than 10 people to help contain the spread of COVID-19…
With remarkable speed COVID-19 has spread to over 150 nations, throwing economies into disarray as governments have ordered residents to stay at home and non-essential businesses to close. The situation had deteriorated so severely that James Bullard, the President of the Federal Reserve Bank of St. Louis, predicted that the U.S. unemployment rate may hit 30% and the economy could see a contraction of 50% in gross domestic product (GDP) in the second quarter of 2020. The S&P 500 quickly sunk into a bear market as it has declined more than 20% from its high. Unemployment claims skyrocketed as businesses laid off workers to try and get through the economic slow-down. As can be seen in the chart, weekly unemployment claims were 3.3 million for the week ending March 21st and 6.6 million for the week ending March 28th, this shattered the previous record of 695,000 from October 2, 1982. Illinois’ unemployment claims jumped to 114,663 the week ending March 21st and to 178,133 the following week. This was up from only 10,870 two weeks prior…
In reviewing the available outlooks, it is clear that economic forecasters are predicting a severe slowdown in the economy-- but the depth and length of the slowdown is unknown. Five economic forecasters stated that the economy was now in recession. Some saw a severe decline, followed by a quick recovery, often referenced as a “V” shaped recovery. This kind of economic environment would be a transitory event like the effects of a hurricane. Other forecasters see a severe decline, followed by a more gradual recovery. This would be more like the Great Recession.
REVENUE: MARCH RECEIPTS LARGELY ESCAPE COVID-19, BUT VIRUS EXPECTED TO QUICKLY MANIFEST ON FUTURE REVENUES ALONG WITH “TAX DAY” DEADLINE CHANGE
Jim Muschinske, Revenue Manager
Base general funds revenues increased by $174 million in March. That performance will surprise many given the dire economic straights in which the country and State finds itself. It does, however, illustrate the inherent lag between economic activity, or lack thereof, and actual receipt performance. Similar delays occur after a change in tax rates or policy—usually at least a month from date of implementation. This “receipts in the pipeline” varies by revenue source, but the eventual impacts of COVID-19 are unavoidable and will quickly manifest in the coming weeks/months.
Excluding proceeds from the Treasurer’s Investment program as well as interfund borrowing, through the first three-fourths of the fiscal year base general funds receipts have posted gains of $1.739 billion. Those gains have been driven by specific transfers [Refund Fund and Capital Projects], comparatively better federal sources, court settlement proceeds, tax amnesty program efforts, and decent underlying performance from the larger economically related sources—which obviously will change in the very near future [see section].
Uncertainty Looms Large For FY 2020 Final Quarter—and Into FY 2021
As demonstrated by the mostly normal performance of March revenues, the impacts of the COVID-19 virus on revenues are only in their infancy. As we move forward over the coming months, the economic shut down will begin to manifest on sales taxes, as well as components of both personal and corporate income taxes. However, the magnitude and duration of these likely abrupt revenue changes are far too uncertain at this juncture to make any confident projections.