DATE: Tuesday, March 10, 2015
TIME: 11:00 a.m.
PLACE: Room C-1 of the Stratton Office Building
TOPIC: FY 2016 Economic Forecast and Revenue Estimate and FY 2015 Revenue Outlook update
January 2015 Monthly Briefing
ECONOMY: CONSUMER REMAINS THE KEY
Edward H. Boss Jr., Chief Economist
Economic growth in the fourth quarter of 2014 slowed to an annual rate of 2.6%. When coupled with the -2.1% annual rate of contraction in the first quarter, this put yearly growth in GDP at 2.4%, not substantially different from the 2.2% in 2013 or the 2.3% for 2012. The largest component was consumer spending, which rose 4.3%. This was partially offset by declining federal government spending, a rising level of imports with lower exports, and weaker business spending.
Even with the strong rise in consumer expenditures last quarter, some hesitation could occur as retail sales fell 0.9% in December. Eliminating auto and gasoline sales, the core rate of retail sales fell 0.3% and November’s 0.7% rise was reduced to 0.4%. The downward revisions to retail sales came as a surprise to the markets.
Such slowing in the economy after rapid growth during the previous two quarters of 4.6% and 5.0% respectively, does not preface a trend, but rather is consistent with many economic forecasts at this time which project moderate growth in the quarters immediately ahead. Global Insight, which correctly forecast real GDP rising at an annual rate of 2.6% last quarter, anticipates some improvement this year with 3.1% growth estimated for the first quarter of 2015 and for the year as a whole.
Illinois’ economy also has improved over the last year although according to the State of Illinois Forecast completed by Moody’s Analytics for the Commission. “Illinois’ economy has improved over the last year, but progress has been slow and the state has underperformed the region and nation in key gauges such as jobs, income and output. The report goes on to point out some of the State’s strengths and differences by regions and is located on the Commission’s web site.
REVENUE: JANUARY RECEIPTS DOWN AS LOWER INCOME TAX RATES BEGIN IMPACT – FEDERAL SOURCES CONTINUE WEAK
Jim Muschinske, Revenue Manager
Overall base revenues fell $363 million in January. As expected, income tax receipts have begun to reflect the lower rates that went into effect January 1st. Federal sources experienced yet another disappointing month, marking the seventh consecutive decline in monthly revenues. One less receipting day likely contributed to some of the decline.
To begin 2015, gross personal income taxes fell $126 million, or $124 million net of refunds. The falloff being attributed to the lower tax rates. Similarly, gross corporate income tax dropped $11 million.
Through the first seven months of the fiscal year, overall base revenues are down $743 million. However, much of that decline was expected and due to the much lower Refund Fund transfer into GRF. In addition, effective January 1st, receipts from the income tax began to reflect the lower rates.
Federal sources are down $594 million thus far in the fiscal year, reflecting lower reimbursable spending from GRF. So far in FY 2015, federal sources have performed very poorly as each month experienced declines from the previous year. It is clear that absent an unexpected surge in general funds reimbursable spending [i.e. Medicaid], federal sources will fall well short of expectations anticipated in the adopted revenue forecast HJR 100.