Date: Tuesday, March 7, 2017
Time: 10:30 a.m.
REVISED Place: Room 413 Stratton Building, Springfield, Illinois
Topic: FY 2018 Economic Forecast and Revenue Estimate and FY 2017 Revenue Outlook Update
January 2017 Monthly Briefing
ECONOMY: IT’S ABOUT JOBS
Edward H. Boss Jr., Chief Economist
The advance report on GDP for the fourth quarter shows growth slowed sharply. Since 2010, the first full year of the recovery, growth was 2.09%, making it the weakest economic expansion in the post WWII period. Despite the sluggishness, the unemployment rate has fallen sharply to 4.7%. This seems incongruous with the election where lack of jobs became a major issue. In assessing the labor market, one must look beyond the unemployment rate. Analysts point to the U6 unemployment rate that includes those marginally attached to the labor force and those that are part time for economic reasons. The U6 rate nationally stands at 9.2%. In Illinois the unemployment rate stands at 5.7%, with the U6 at 11%. Many analysts also point to the labor force participation rate, which is at its lowest rate since the late 1970s. An aging workforce is one reason, but a large part can be explained by discouraged workers dropping out of the labor force. Many of the jobs available require a higher skill level than those looking for jobs have. At the same time, there has been a loss of many higher-paying manufacturing jobs.
In December 2016, Illinois’ manufacturing employment reached its lowest level since September 2010. Even so, there appears to be renewed optimism. Promises by the President were given to many manufacturers including business tax reductions, incentives to repatriate funds, and reduced regulations. At the same time, there were signs of potential job improvements in the disappointing GDP report. Business fixed investment rose at the fastest pace of the year while residential investment showed a strong gain. The slowdown in the 4th quarter came from negative contributions from net exports and federal government spending.
In evaluating progress on jobs, it is necessary to do this in the context of additional measures to the unemployment rate. For example, if the labor force participation rate were to increase, it might lead to a higher unemployment rate, but it would be positive to have a larger share of the populace contributing to growth. The U6 definition would paint a better picture. When one looks at nonfarm payroll employment, it may be distorted. Some employers had cut back the number of hours an employee can work in order to avoid mandatory insurance forcing many to have more than one job. Since payroll data comes from employee records, they would be double counted. Should the job situation improve so that one job would suffice, it would depress nonfarm payroll totals, but could be a healthy sign.
REVENUE: JANUARY RECEIPTS DROP AS WEAKER INCOME TAX AND FEDERAL SOURCES OFFSET OTHER GAINS
Jim Muschinske, Revenue Manager
Overall base revenues fell $167 million in January. As in prior months, continued weaker income taxes along with poor federal sources more than offset gains experienced by the other revenue sources, adding further concern to observations made in last month’s briefing.
Through January, base receipts are off $1.031 billion, or 5.9%. The past months performance did little in the way of alleviating concerns over FY 2017 revenues spelled out in last month’s briefing, particularly the disturbing observations made regarding the “Big Three”. While sales tax now has managed to post back to back months of decent performance, those gains were more than erased with continued drops in both personal and corporate income taxes.