Today, the biannual Consensus Revenue Estimating Conference was held in Lansing. The conference included House and Senate members, the directors of the House Fiscal Agency and the Senate Fiscal Agency, State Treasurer Rachael Eubanks, and State Budget Director Chris Kolb.  After hearing testimony from the Research Seminar on Quantitative Economics at the University of Michigan, IHS Markit, and senior economists from the House and Senate Fiscal Agencies and the Department of Treasury, the principals came to an agreement on economic and revenue figures for the remaining 2018 – 2019 Fiscal Year and the upcoming 2019 – 2020 Fiscal Years. 

Revenue projects in the state are being revised from estimates made at the May 2018 Consensus Revenue Estimating Conference. In Fiscal Year 2019, there is an increase to the General Fund-General Purpose (GF-GP) of $288.6 million from prior estimates and a decrease of $23.9 million to the School Aid Fund (SAF). In Fiscal Year 2020, there is a projected increase to the GF-GP of $199.1 million from prior estimates and an increase to the SAF of $25.9 from prior estimates.

Additional highlights include:

National Forecast:

• Real output growth should taper off in the near future
• Consumers remain fairly optimistic about the economy
• The unemployment rate is projected to continue its downward trend
• Wage growth is finally starting and should continue to increase in the near term, if the economy keeps expanding
• Vehicle sales are steady but will taper off slowly
• There’s no hint of runaway inflation despite solid wage growth
• Inflations is expected to be modest; 2.6% in 2019, 15.5%-2.2% in 2019, 2.2% in 2020, and 2.0%-2.2% in 2021
• Single-family home price appreciations are projected to have small growth
• Payroll employment gains will slow; but the 2020 census will give a temporary job growth
• Federal action will be needed to avoid $120 billion in sequestration cuts during Fiscal Year 2020 and Fiscal Year 2021
• Student loan debt is increasing

Michigan Forecast:

• The economy should continue to grow, but at a slower pace
• There are no projected pay-outs from the Budget Stabilization Fund through Fiscal Year 2021
• Fiscal Year 2019 annual income tax payments are projected to be higher compared to May’s estimates
• The sales tax revenue is projected to be stronger due to the United States Supreme Court decision regarding collecting sales tax on online purchases
• Monthly building permits are disappointingly slow to recover from the recession
• Unemployment claims are below the levels prior to the previous recession, which is good news
• Michigan had a higher unemployment rate prior to going into the previous recession
• The pace of job growth going forward is projected to slow
• The manufacturing sector has been slowing recently and will come to a standstill over the forecast period
• Construction job growth is slow and may face challenges due to rising mortgage rates
• Wholesale trade jobs are increasing due to increased online sales causing the need for warehouses and trucking
• Since 2012, leisure and hospitality jobs have grown faster than the statewide job growth rate
• The unemployment rate is projected to be 3.9% in 2019, 3.8% in 2020, and 3.7% in 2021
• Light vehicle sales had a record rate in 2016, they have slightly declines since and are projected to continue
• The Detroit 3 share of vehicle sales will remain roughly steady, with a slight decline

Risks to the Forecast:

• International trade war – All of the economists placed this at the top of the list of potential risks to the outlook
• The USMCA (replacing NAFTA) isn’t done yet, there’s uncertainty about the final agreement
• Labor shortages
• Fiscal monetary policy, especially the Federal government shutdown
• Slower foreign growth
• Oil and gasoline prices
• Abnormal weather
• Volatility in the Michigan Corporate Income Tax

The administration and the legislature will use the information presented today, and the agreed upon revenue numbers, to craft their budgets for the upcoming Fiscal Year.  Governor Gretchen Whitmer will present her executive recommendations in the coming weeks and the legislature will begin to introduce their budget recommendations shortly thereafter. In May the parties will hold another Consensus Revenue Estimating Conference to update and change numbers, if necessary, due to the latest economic data available.

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