Commission on Government Forecasting and Accountability
Jil Tracy, Co-Chair
Michael Frerichs, Co-Chair
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November 2014 Monthly Briefing
Edward H. Boss Jr., Chief Economist

As the holiday spending season is underway, the outcome for consumer spending will provide the basis for the path of the economy in the new year. Expectations remain high as recent reports indicate that consumers are invigorated.

Personal spending rose 0.2% in October following no change in September which in turn was revised up from an initial decline of 0.2%. Incomes also rose 0.2% last month and the savings rate remained at 5%, indicating the ability for increased expenditures. At the same time, the latest release from the University of Michigan on consumer sentiment reached a 7- year high.

Other factors also may be cited for providing an improved setting for holiday spending. Gasoline prices have fallen sharply in recent months, equity prices reached record levels, and an early onset of cold weather may spur some early shopping, while improvement in the job market may reduce some of the hesitance from spending.

The National Retail Federation forecast holiday sales in 2014 to rise 4.1%, up a full percent from the 3.1% gain in 2013 and an average 2.9% gain over the past 10 years. Wells Fargo Bank’s Economics Group that uses the same definition forecasts a gain of 3.9%. While, a similar holiday sales forecast is done by Deloitte which measures retail sales for the months of November through January to increase 4% to 4.5%.

The consumer remains key to the economy as we enter 2015 as business spending seems restrained. Housing gains have moderated, and a slowdown in China and troubles in several European countries will reduce export sales. All this is occurring at a time of uncertainty in the Middle East, disturbances at home, and only slow improvement in the job picture. As a result, forecasts of economic growth for the last quarter of 2014 are likely to fall from the 3.9% fourth quarter rate to the mid 2% area. Moreover, the economy is likely to remain in that 2% range of recent years, not progressing to the 3% range on a sustained basis for some time to come.

Jim Muschinske, Revenue Manager

Overall base revenues declined $54 million in November. The various revenue sources were mixed for the month. However, federal sources continued to underperform expectations, as they have for most of the fiscal year. In addition, two less receipting days contributed to the monthly decline. It is not uncommon for receipting days to vary by one day. But, they can on occasion vary by two or more depending how the calendar falls. When that occurs, revenues can experience temporary monthly swings.
Through the first five months of the fiscal year, overall base revenues were down $452 million. However, much of that decline was expected and due to the much lower Refund Fund transfer into GRF. In addition, weaker federal sources to begin the year contributed significantly to the fall off. The economically related sources were mixed as both personal income taxes and sales performed well while corporate income taxes weakened.
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