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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: January 2016 Revenue & Economic Update

January 11, 2016

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FY2016 Revenue. Minnesota’s net general fund receipts totaled $3.695 billion during the months of November and December of 2015, $43 million (1.2 percent) more than projected in November 2015’s Budget and Economic Forecast. Net receipts from the individual income tax, corporate tax, and other revenues were above forecast, offsetting lower than expected net sales tax receipts. The positive variance for the period was generated in December, as November receipts fell slightly below forecast.

 

U.S. Economy. The Federal Reserve raised short-term interest rates in mid-December for the first time in almost a decade. The widely anticipated action — the central bank lifting its benchmark rate by a quarter of a percentage point — signals the end of an extraordinary seven-year period of record low borrowing rates and reflects confidence in the strength of the U.S. economy. Most Fed officials expect the pace of subsequent rate hikes to be gradual, by about one percentage point each year for the next three years, and dependent on incoming economic data. 

The Fed’s decision to raise its key rate was motivated in part by improving economic activity. Recent data confirm that consumer spending and business investment have been solid, with the exception of capital expenditures by firms exposed to international competition, low oil prices, and falling agriculture prices. Real GDP rose at a 2.0 percent annual rate in the third quarter of 2015, well below the 3.9 percent gain in the second quarter. A sizeable inventory correction and foreign trade were the main drags. If inventories and trade are excluded, real final sales to domestic purchasers rose a solid 2.9 percent, following a similar increase of 3.7 percent in the second quarter.

A range of labor market indicators also show considerable improvement. The U.S. economy added a solid 2.7 million jobs in 2015, about the same gain as in the past two years. Consistently strong job gains have helped quickly absorb the unemployed and underemployed, and push down the U.S. jobless rate to 5.0 percent in December, from 5.7 percent at the start of the year. Perhaps most encouraging is that the number of available jobs across the country has surged. The ratio of job seekers to open positions is near its lowest value since 2001. Openings are widespread among industries, especially in healthcare and professional services. U.S. layoff announcements are also extraordinarily low.

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