DATE: Tuesday, March 1, 2016
TIME: 11:00 a.m.
PLACE: Room 114, State Capitol Building, Springfield
RE: FY 2017 Economic Forecast & Revenue Estimate and Update to FY 2016 Revenue Outlook
January 2016 Monthly Briefing
ECONOMY: DOES A RECESSION LIE AHEAD?
Edward H. Boss Jr., Chief Economist
In the opening days of the year the stock market was the worst ever. Some of the largest declines coincided with a recession. Even so, the market predicted only 8 recessions out of the past 14 sharp market plunges.
The National Bureau of Economic Research is the official determiner of business cycles. “The NBER does not define a recession in terms of two consecutive quarters of decline in real GDP. Rather, a recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”
While the unemployment rate has fallen faster than most expected, the labor participation rate remains the lowest since the late 1970s and real average hourly earnings show little gain. At the same time, the inflation rate continues below that desired by the Federal Reserve. At month’s end, the Commerce Department released its initial report on GDP for the final quarter of 2015 indicating a slowing in growth to a 0.7% annual rate and 2.4% for the year, keeping it in 2% to 2.5% area of recent years.
All this is not to say the economy is free of recession risk. The U.S. economy continues to grow in contrast to much of Europe, developing countries, and a noticeable slowing in China. Within the U.S., however, there has been a slowing in some key sectors. U.S. exports have weakened while a strengthening in the dollar is reducing competitiveness thus slowing our exports. Manufacturing already is in recession. Despite the economy’s current situation, the business cycle lives on, and Global Insight sets odds for a mild recession beginning later this year at 20%.
REVENUE: JANUARY REVENUES FALL
Jim Muschinske, Revenue Manager
Overall base revenues fell $250 million in January. While personal income tax receipts performed as expected, corporate income taxes and the sales tax continue to disappoint.
Through the first seven months of the fiscal year, base receipts were down $2.062 billion. The drop reflects comparatively lower income tax rates for the first part of the fiscal year as well as the one-time nature of some pharmaceutical court settlements recovered by the Attorney General‘s Office last fiscal year.