Commission on Government Forecasting and Accountability
HOUSE
Robert Pritchard, Co-Chair
SENATE
Donne Trotter, Co-Chair
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Meeting Notice
DATE: Tuesday, April 4, 2017
TIME: 9:30 a.m.
PLACE: Room 400, State Capitol Building, Springfield, IL
TOPIC: State Employees’ Group Insurance Program FY 2018
February 2017 Monthly Briefing
ECONOMY: INFLATION MAY BE KEY TO FED POLICY
Edward H. Boss Jr., Chief Economist

The rise in the federal funds rate at yearend brought with it the conclusion to the accommodative near zero interest rate policy pursued by the Fed. Recently signs of an improving pace of growth emerged raising questions as to what additional steps the Fed may make toward ”normalizing” interest rates. Several recent business reports portray an improving economic environment. Perhaps most dramatic of these has been the performance of the stock market. At the same time, the consumer showed renewed vigor. Improvement in retail sales was accompanied by rising consumer optimism. And, manufacturing, after a weakening trend from mid-2015 into early 2016, began to increase. As a result, many forecasters have upped their expectations for first quarter real GDP growth to the 2.1% - 2.3% range, up from 1.9% in the fourth quarter and a meager 1.6% growth for all of 2016.

Recently-released minutes of the FOMC (Federal Open Market Committee) stated “many participants expressed the view that it might be appropriate to raise the federal funds rate again fairly soon if information on the labor market and inflation was in line with or stronger than current expectations, or if the risks of overshooting the Committee’s maximum employment and inflation objectives increased.” Many observers now anticipate three modest increases in the federal funds rate this year. The next FOMC meetings are in March, May, and June.

It is well understood that the impact of Federal Reserve policy on the economy operates with a significant lag, sometimes up to 18 months. And, because of that lag, policy actions to achieve certain employment and inflation objectives are often overshot. On inflation, history shows us that once ignited, it has proven hard to reign in.

REVENUE: FEBRUARY FREEFALL – SIGNIFICANT DOWNWARD ADJUSTMENT COMING IN MARCH
Jim Muschinske, Revenue Manager

Overall base revenues fell $423 million in February. Like a broken record, monthly declines reflected weaker income taxes along with poor federal sources. Unfortunately, February’s lackluster performance was widespread with only a couple sources managing to show gains. One less receipting day likely contributed to the decline, though certainly not the primary culprit.
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Through the first two-thirds of the fiscal year, base receipts are off $1.453 billion, or 7.5%. Weakness is widespread, and has resulted in year over year losses in key areas such as income taxes and federal sources. With renewed uncertainty of sales tax performance, and with only four months left in FY 2017, it will be very difficult to alter the trajectory of what has turned into a dismal year for revenues.
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MARCH REVISION SCHEDULED
The Commission has scheduled a meeting on March 7th 2017 to discuss the economic and revenue outlook for FY 2018. In addition, a revised forecast for FY 2017 will be prepared and presented. Readers of the monthly revenue briefings will not be surprised with the likely outcome showing a significant downward revision necessitated by year to date performance.