Minnesota ended the recent budget year stronger than expected, according to preliminary analysis from Minnesota Management & Budget.
Their July Economic Update finds that state revenues have come in above expectations. The state’s 2014 fiscal year ended on June 30. State revenues came in $168 million, or 0.9 percent, higher than projected in the February Forecast. This is mostly due to higher income tax and sales tax collections. The Update cautions that timing issues could be at play with these preliminary figures, and these numbers could change as they are finalized in August.
While the news for state revenue was welcome, the national economy is a different story. The July Update’s outlook for U.S. 2014 GDP growth is a full percentage point lower than in the February Forecast. This is due to a much weaker start to 2014 than expected, with factors including the harsh winter taking their toll. But the economy is already rebounding from this temporary setback. Higher consumer confidence, faster employment growth, and improved factory production are all expected to contribute to strong growth for the rest of 2014 and into 2015.
The economic forecasters are fairly confident in their projections, and assign a 70 percent probability to their baseline economic forecast. They give a 15 percent chance for a more pessimistic scenario in which economic growth stalls and the U.S. barely avoids a recession; and a 15 percent chance that the economy will be even stronger than the baseline predictions, due to better than anticipated foreign growth and related depreciation of the U.S. dollar.
This update brings the state good news. It also reminds us that the economy can take unexpected turns. It’s important for the state to prepare for the unexpected, and the increase to the budget reserve made in the 2014 Legislative Session is an example of the kind of sound planning that policymakers can undertake so that Minnesota can best meet the needs of its residents in good times and in bad.