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April 11, 2016
QUICK SUMMARY
Revenue. Minnesota’s net general fund receipts totaled $2.411 billion during the months of February and March 2016, $11 million (0.5 percent) less than projected in the February 2016 Budget and Economic Forecast. Net corporate tax payments and other revenues exceeded the forecast, partially offsetting lower-than-expected net individual income tax payments.
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Economy. Broad economic indicators have sent conflicting signals about the health of the U.S. economy since Minnesota’s Budget and Economic Forecast was last prepared in February. On the plus side, recent reports on the labor market continue to demonstrate solid performance. Average monthly job growth so far this year — driven by strong gains in the construction and service sectors — is identical to the average for the past four years. In addition, the number of job openings is near its highest point in 14 years, more workers are being drawn into the labor force, and the unemployment rate has fallen to near eight-year lows. Steady job gains and modest inflation appear to be supporting solid real disposable income growth and, in turn, moderate retail sales, vehicle sales, and home buying activity in early 2016. Finally, oil prices have rallied to above $40 per barrel in recent weeks, which has helped strengthen commodity-linked currencies, such as the Canadian dollar, against the US dollar. These developments have helped allay concerns about the durability of the expansion, which arose at the start of the year amid fresh signs of a global economic slowdown and subsequent financial market turmoil.
On the other hand, incoming economic data over the past several weeks point to a number of persistent weaknesses. The latest GDP revisions confirm the U.S. economy finished 2015 on a weak note, with increases slowing to under 2 percent (annual rate) in the second half of the year. More recent figures show manufacturing and foreign trade are still struggling in early 2016, hurt by a strong U.S. dollar, weak global growth, and the collapse in energy prices. These same factors are weighing on business investment, as new orders and shipments for durable goods — key sources of data used to estimate capital equipment spending in the GDP accounts — continued to trend lower to start the year. Business’ efforts to work off an inventory glut is also persisting longer than previously expected.
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