DATE: Tuesday, April 14, 2015
TIME: 9:30 a.m.
PLACE: Room 114, IL State Capitol
TOPIC: State Employee’s Group Insurance Program
TOPIC: FY 2016 Economic Forecast and Revenue Estimate and FY 2015 Revenue Outlook update
February 2015 Monthly Briefing
ECONOMY: DEJA VU?
Edward H. Boss Jr., Chief Economist
The economy in the first two months is reminiscent of last year when the economy actually contracted in its first quarter at a 2.1% annual rate. While this is unlikely to be repeated to the same extent this year, there can be no doubt that weather has had a depressant effect. Retail sales fell in both December and January while the latest measures of Consumer Confidence and Sentiment Indices turned down. Another consumer-related expenditure has been the sharp turnaround in housing. Even so, there has been some hesitation recently.
In the first revision of the 4th quarter, GDP was lowered from 2.6% to 2.2%. In addition to the weather, sectors other than the consumer have weakened. U.S. exports are under downward pressure due in part to relative weak economies abroad and exasperated by a strengthening dollar and the labor dispute at West Coast ports. Even though the strike was settled in late February, it would take three months to return to normal. Business spending also appears to have softened while real federal government spending declined at a 7.5% annual rate after rising at a 9.9% in the previous quarter.
In conclusion, after the contraction in real growth in the first quarter of last year, a spring and summer rebound in the second and third quarters gave some observers the impression that the U.S. had freed itself from sluggishness. However, the slowdown in the final quarter held the year’s growth to 2.4%, making it the fifth year in a row that the economy has been stuck in a 2% to 2.5% range. Thus, the current expansion continues to be the weakest in the post WWII period. With another severe winter this year, the question arises if we are once again going to repeat last year’s performance or finally break out; returning to what previously had been much faster growth.
REVENUE: FEBRUARY RECEIPTS DOWN AS LOWER INCOME TAX RATES CONTINUE – FEDERAL SOURCES AGAIN WEAK
Jim Muschinske, Revenue Manager
Overall base revenues fell $347 million in February. Income tax receipts are reflecting the lower rates that went into effect January 1st. In addition, February was the first month that the distribution of income tax was changed to include monies going to the Fund for Advancement of Education and the Commitment to Human Services Fund. Federal sources experienced yet another disappointing month, marking the eighth consecutive decline in monthly revenues.
Through the first two-thirds of the fiscal year, overall base revenues are down $1.091 billion. However, much of that decline was expected and due to: the much lower Refund Fund transfer into GRF; lower income tax rates as of January 2015; and, the change in income tax distribution change [the new distribution to the education and human services fund(s) primarily impact personal income, as very little corporate income meets the statutorily definition of the type of income tax that falls under the new distribution].
Federal sources are down $676 million thus far in the fiscal year, reflecting lower reimbursable spending from the GRF. So far in FY 2015, federal sources have performed 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.
** The Commission is scheduled to present its updated FY 2015 Revenue Forecast and FY 2016 Revenue Outlook on March 10th in Room C-1 of the Stratton Building at 11:00 am. **