Commission on Government Forecasting and Accountability
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Donald Moffitt, Co-Chair
SENATE
Donne Trotter, Co-Chair
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August 5, 2015 Meeting Notice - TIME CHANGE
Date: Wednesday, August 5, 2015

**** TIME CHANGE to 9:00 A.M. ****

Place: Room A-1 Stratton Building
RE: Vote on proposed closures of Illinois State Museum and Hardin County Work Camp
July 2015 Monthly Briefing
ECONOMY: NOT MUCH OF A REBOUND
Edward H. Boss Jr., Chief Economist

The economy rose at an annual rate of 2.3% in the second quarter, while the first quarter’s 0.2% decline now shows a rise of 0.6%. Even so, growth in the first half of 2015 ran at a 1.5% annual rate, weaker than the 2.25% annual rate in the first half of 2014.

Slower growth from revisions extends beyond first half-year comparisons. From the fourth quarter of 2011 to the first quarter of 2015, real GDP increased at an average annual rate of 2.0%, down from the 2.2%. As a result, the economic recovery from the recession not only has been the weakest in the post-World War II period, but has been slower than reported.

While the economy is likely to continue to grow, rather than elevating from a 2% to 2.5% range to 3% or higher, it could remain in its current range or even somewhat slower. This provides a particular quandary for the monetary authorities.

On the one hand, the pace of growth has picked up, unemployment rates have reached levels than could have been hoped for just a few years ago, oil prices have been cut in half and price increases remain below target. The Federal Reserve has expressed a desire to slowly raise interest rates. It has been 9 years since the Fed last rose interest rates and 6 years of near zero rates.

While designed to stimulate, the prolonged period of low rates had a dramatic impact on savings and investment. The lack of an anticipated rate of return on investments caused actuaries to miss the boat, causing pension funds to be underfunded, hurting those on a fixed income, and causing heavy flows into the equity markets as investors try to earn a return. On the other hand, should a rise in interest rates weaken an already modest business expansion, the Fed doesn’t want to reverse policy as it has few other arrows in its quiver to stimulate an already aging recovery.

REVENUE: JULY REVENUES FALL AS EXPECTED, RECEIPTS CONTINUE TO REFLECT LOWER INCOME TAX RATES
Jim Muschinske, Revenue Manager

Overall base revenues fell $377 million in July. Comparatively lower income tax rates as well as timing of a one-time court settlement received last year, accounted for most of the monthly drop.