New National Jobs Numbers Have Worrisome Implications for State Economy and State Budget
Most economists seem to be divided into two camps. Some think the nation is beginning to slide into the second trough of a double-dip recession. Many of the rest say it’s not that bad (at least in the short run) – but we’re in for a long period of very high unemployment and a relatively flat GDP (gross domestic product), which some have suggested could look like Japan’s “lost decade.”
Perhaps there’s a third camp that’s a bit more optimisitic, but nearly all the economists seem to agree that we won’t see a strong recovery any time soon. That’s very worrisome for the U.S. economy and the federal budget, and it also makes me worry about the state budget. The WI Department of Revenue hasn’t issued its quarterly “economic outlook” report for the summer, but it’s likely to be coming out in the next few weeks, and most of the recent news points to much less optimistic projections than the ones we saw in DOR’s spring quarterly report.
The downward revisions in the latest national economic forecasts will no doubt affect the next state forecast, and that could eventually lead to a reestimate of state tax revenue. Coming on top of the slightly negative tax collection figures released by DOR today, more pessimistic assumptions about economic growth nationally and in Wisconsin could have significant fiscal implications.
The May 2011 Economic Outlook was used by the Legislative Fiscal Bureau in estimating taxes and spending in the 2011-13 budget bill. It assumed a Wisconsin unemployment rate falling steadily from 7.2% this year to 5.5% in 2014, as the U.S. rate fell to 8.2% next year and 7.1% in 2014. It assumed national GDP growth averaging 4.5% over a 3-year period (2011 through 2013), or 2.8% in “real” terms (after adjusting for inflation) and personal income growth averaging 4.5% per year over that same period.
In contrast to those rather optimistic assumptions, which seemed quite reasonable at the time, new economic forecasts released by the White House Thursday paint a picture of very modest growth. As the Associated Press reported yesterday, the new forecast is for a 9% unemployment rate this year and next, and GDP growth of just 1.7% this year and 2.6% next year. Today’s report of zero growth in jobs reinforces yesterday’s downward revisions in economic projections.
Until today, my hope for the state budget picture was that Wisconsin’s tax collections would be stronger than anticipated in May and June, creating a somewhat larger budget balance and – more importantly – a larger revenue base to build on (or subtract from) in the next biennium. The DOR report today – showing that revenue in fiscal year 2011 fell about $13 million short of the projection made in May – is disappointing because it doesn’t provide the modest increase in the base level of taxes that I hoped would create at least a small margin of error in the 2011-13 budget.
In light of all of those considerations, I’ll be waiting with trepidation for the release of the DOR’s next quarterly outlook. And I’ll be watching anxiously to see if the President and Congress can turn their attention from the long-term problems of deficit reduction to the far more urgent task of stimulating the economy and creating jobs. The current economic stagnation is a growing threat to American workers, the federal budget and Wisconsin’s fiscal picture.