Despite this short-term reduction in projected GDP growth, the MMB consultant continues to forecast accelerating economic growth over the course of 2014.
(Published Apr 21, 2014)
Minnesota Management and Budget (MMB) on April 10 released the April Economic Update, a report on state revenue collections for February and March of 2014. The report compares state revenue collections to the levels forecasted in the February state budget forecast. The report does not include information on state expenditures.
According to the report, the state’s net general fund revenues totaled $2.637 billion for the months of February and March, which was $67 million, or 2.5 percent, less than projected. Although total revenues were lower than projected, individual income tax collections actually exceeded expectations by $28 million. Revenue collections were lower for all other major categories, including the general sales tax (-$4 million, or 0.6 percent), the corporate income tax (-$17 million, or 5.4 percent) and “other revenues” (-$74 million, or 18.2 percent).
The report notes that the large variance in “other revenues” may be due to normal variation in the timing of receipts from several sources, including cigarette and tobacco taxes, the health care surcharge, and departmental earnings. MMB suggests that these timing issues are expected to resolve before the close of the fiscal year, which could significantly reduce the final variance in “other revenues.”
The report suggests that lower collections, including the lower collections for sales tax and corporate income tax could be due to a variety of economic factors, including the effects of severe winter weather conditions on retail sales and residential investment. MMB states that their macroeconomic consultant has adjusted their annualized projection of gross domestic product (GDP) growth for the first quarter of 2014 to 0.9 percent, which is down from the February forecast growth rate of 1.9 percent.
Despite this short-term reduction in projected GDP growth, the MMB consultant continues to forecast accelerating economic growth over the course of 2014, led by an improvement in consumer spending and improved housing and residential investment. The report indicates that the improved pace of economic growth is expected to generate faster job creation, reducing the unemployment rate closer to 6 percent by the end of 2015.
MMB will issue another snapshot of the state’s revenue collections in a memo summarizing April revenue collections that should be released around May 10. That memo will provide legislators with one last indication of the status of the state budget before they are required to adjourn on May 19.
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