April 2016 Monthly Briefing
ECONOMY: A Three-peat?
Edward H. Boss Jr., Chief Economist
Business reports weakened during the first quarter, repeating the pattern of the prior two years. Real GDP rose 0.5%, slowest in two years. Consumers saw retail sales decline by 0.3% in March. Housing starts and permits both fell as Consumer Sentiment and Attitudes softened. The Index of Leading Economic Indicators displayed a weak trend with both Manufacturing and Non-manufacturing hovering between expansion and contraction.
Industrial Production dropped 0.6%, falling at a rate of 2.2% in the first quarter. The decline centered in mining and utilities. Mining has been on a downward trajectory with cutbacks in oil production and sliding prices and coal continued under attack. Capacity Utilization fell 0.5 %. This was 5.2 % below its long-term average, suggesting adequate capacity and less pressure for new investment given weakening corporate profits.
Unlike recent years when a weak first quarter followed a strong second half of the prior year, the first quarter of this year followed a slowing. Some analysts blame changing seasonal factors for the pattern. Others suggest that the weak GDP runs counter to other data. The economy experienced an improving labor market during the quarter with the participation rate on the rise as previously discouraged workers returned to the jobs market and total employment and wages finally showed some improvement.
With meager first quarter growth, the Federal Open Market Committee decided in April to leave the federal funds rate unchanged. (One member voted against the action preferring to raise the target range by another ¼ %.) Clearly the main emphasis in looking ahead will be increasing employment and a labor force participation rate increasing. While no sharp rebound in GDP is anticipated, some improvement is likely, and should be sufficient to warrant further gradual increases in the federal funds rate as it moves toward normalization.
REVENUE: As Expected, April Revenues Plummet
Jim Muschinske, Revenue Manager
Overall base revenues fell $2.589 billion in April as compared to the same month last year. Fueling last year’s phenomenal performance was $1.074 billion in fund sweeps, large federally reimbursable spending and corresponding reimbursements, along with higher than expected income tax receipts. None of those items were expected to repeat this fiscal year. Also negatively affecting this April’s receipts was one less receipting day than last year, in addition to a timing issue related to a new ledger system conversion at the IDoR.
During the first part of the month, the Commission noticed some odd receipting patterns, namely, there were two days of essentially little or no receipting. Since April is a usually large month due to final income tax payments that was alarming. On investigation, it was determined that the IDoR’s recent ledger system conversion has increased the transit time of receipts by two days. While no receipts are actually lost as a result of the increased transit time, it will have the impact of two less receipting days in FY 2016 than was anticipated. The value of those two days [which really will end up being the last two days in June due to the two day shift] are expected to be approximately $150 million. There will be no impact to FY 2017.
Through April, base receipts are down $4.977 billion. The drop reflects comparatively lower income tax rates for the first part of the fiscal year, the one-time nature of some pharmaceutical court settlements recovered by the Attorney General‘s Office last fiscal year, no fund sweeps year to date, and the dismal performance of federal sources.