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Revenue & Economic Update

In between each Budget & Economic Forecast , we also prepare a quarterly Revenue & Economic Update in January, April, July and October of each year. The Revenue & Economic Update reports on how actual revenue collections for the current year compare to the previous forecast as well as provide notes on changes in the national and state economic outlook.

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Banner_R&EULatest: July 2015 Revenue & Economic Update

July 10, 2015

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Revenue. Minnesota’s net general fund receipts for FY 2015 are now estimated to total $20.363 billion, $555 million (2.8 percent) more than projected in the February 2015 Budget and Economic Forecast. Higher than expected individual and corporate income tax receipts account for nearly all of the additional FY 2015 revenue. General fund revenues in FY 2015 are now estimated to be 5.6 percent greater than in FY 2014. State revenues for the final quarter of FY 2015 were $455 million more than forecast.

U.S. Economy. The U.S. economy got off to another slow start in 2015. The Bureau of Economic Analysis (BEA) estimates that real GDP fell at an annual rate of 0.2 percent during the first quarter of the year, down from 2.2 percent growth in the prior quarter. The first quarter slowdown is attributed to a number of temporary factors. Severe winter weather conditions in the Northeast and Midwest took a bite out of home construction and auto sales. Slower oil drilling activity in the wake of falling crude prices hit business investment in that sector hard and fast. The since-resolved West Coast port labor dispute delayed deliveries of manufactured inputs and retail goods. Finally, the stronger dollar cut into net exports.

Nonetheless, transitory factors that weakened first-quarter growth appear to have faded. The economy is now finding greater support in more recent measures of underlying economic activity. The labor market continues to tighten, growth in total compensation is accelerating, home and vehicle sales have ratcheted back up, and confidence among consumers is near recovery highs. As a result, MMB’s macroeconomic consultant IHS Economics expects real GDP growth to rebound to 2.4 percent (annual rate) in the second quarter of 2015 before expanding nearer to 3 percent in the second half of the year and into 2016.

Minnesota Economy. Cooling demand in China, combined with a global supply glut of steel, has led to a collapse in prices for both finished steel and its primary raw material, iron ore. Prices for iron ore have fallen by more than half in the past 18 months, from $135/ton in early 2014 to below $50/ton in early July. That squeezes producers’ profit margins. 

Slumping global prices coupled with the stronger dollar is also making foreign steel less expensive, sparking a surge in U.S. imports, including by auto makers. In response, domestic steelmakers have cut prices, curbed production, and reduced demand for Minnesota taconite iron ore, the source of approximately 75 percent of total U.S. production. This has led to the idling or slowing of mining operations on Minnesota’s Iron Range in recent months, directly affecting more than a thousand workers. That accounts for nearly one-fourth of northeastern Minnesota’s 4,400 iron ore mining jobs in 2014. It also impacts jobs and income in support industries, including utilities, transportation and manufacturing.

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