Yesterday, the biannual Consensus Revenue Estimating Conference was held in Lansing.  The conference included members of the House and Senate Appropriations Committees, the directors of the House and Senate Fiscal Agencies, the State Treasurer, and the State Budget Director.  They heard testimony from the Research Seminar in Quantitative Economics (RSQE), IHS Global Insight, and analysts from the Department of Treasury, and the Senate and House Fiscal Agencies.  According to consensus numbers, the state economy is projected to grow and over the next two Fiscal Years total state revenue is projected to increase a combined $918.6 million dollars.  However, this is at a slower rate than was projected at the May Consensus Revenue Conference.  

Experts agree that Michigan’s economy is continuing to recover, numbers are showing strong vehicles sales, and an improved housing market.  However, the lower gasoline prices have caused a significant reduction in sales tax collections in the state.  From the 2014 Fiscal Year to the 2015 Fiscal Year, gasoline sales tax revenue decreased by 26.8%.  The decrease in oil and gas prices was discussed at length at the conference, with both national and state economic forecasts reflecting the negative impacts and uncertainty that results of the decrease.  The experts agreed that as of yet, there hasn’t been a positive impact on the economy due to consumer costs savings at the gas pump.  This is mostly due to the uncertainty that surrounds the current price and if that is the new norm or only a temporary blimp.  

The administration and the legislature will use the below information and the agreed upon revenue numbers to craft their budgets for the upcoming Fiscal Year.  Governor Rick Snyder will present his executive recommendations on Wednesday, February 10 and the legislature will begin to introduce their budget recommendations shortly thereafter.

Some key economic highlights include;

Global Forecast:•    The global economy remains in low gear and modest growth is projected in 2016.
•    Commodity prices are declining, most notably the price of oil.  This has a negative impact on developing economies, reducing their growth.  
•    Asia-Pacific (excluding Japan) will achieve the fastest growth in real GDP.
•    Countries who rely heavily on oil exports will feel impacts due to the decrease in per-barrel price.  This may include devaluing their currency and a reduction in purchasing imports.
•    There remains a great deal of uncertainty with Chinese growth.
 

National Forecast:•    Gains to jobs, real disposable income, and household net worth will lead to increased consumer spending.
•    The El Nino event is shifting spending patterns across time and categories, making data more volatile.
•    Light vehicle sales are booming and those numbers are expected to continue.
•    A consequence of the increased value of the dollar is a decrease in demand for industrial production.
•    There are two factors that will negatively affect domestic exports; the sharp increase in the value of the dollar and the slowing growth in developing economies due to the decrease in oil prices.
•    Weak inflation numbers should be only temporary and have not delayed federal interest rate increases, which are projected to gradually increase through 2018.
•    Due to the federal budget agreement, there is more certainty in national forecasts than has been the case for the past five to eight years.  In addition, the certainty of an agreement boosts near-term spending and adds to economic growth.
•    The Real GDP is expected to grow from 2.5% in 2016 to 2.8% in 2017, and will see a slight decrease in 2018 to 2.4%.  Consumer spending numbers are helping growth, but the decrease in imports are dragging the growth rate.
•    The CPI is projected to increase from 0.1% in 2016 to 1.5% in 2016, 2.3% in 2017 and 2.4% in 2018.
•    Single-family existing home sales are projected to increase through 2018.
•    Private employment payroll remains at an all-time high.  Job growth is slowing, but that’s not a bad thing.  As the unemployment rate decreases, there is a smaller pool of applicants from which to draw from.
•    The recovery in the housing market in growing due to sustained job growth, increased credit availability, and pent-up demand due to young adults postponing homeownership.
•    Risk to the economic outlook include; commodity prices, financial market volatility, monetary policy, and abnormal weather.
 

Michigan Forecast:•    RSQE extended their projected state economic recovery period to nine years.
•    The Detroit Three share of the vehicle sales market will continue to increase from 43.6% in 2015, to 44.1% in 2016, 44.4% in 2017, and 44.5% in 2018.
•    Wage and salary employment will continue to grow through 2018, bringing the number of jobs to 2003 levels.  The average yearly gains will be 57,400 per year.
•    Michigan’s unemployment rate will continue its decrease, from 5.4% in 2015, to 4.9% in 2016, 4.6% in 2017, and 4.5% in 2018.  This puts the state essentially even with the federal unemployment rate moving forward.
•    Since January 2011, there has been an 11.7% growth in Michigan payroll employment.
•    Real Disposable Income peaked in 2015 to 5.1% due to decreased inflation, but will move back into the typical rate range in 2016 – 2018.
•    GDP growth has been modest, however there has been positive growth twenty two of the last twenty four quarters.
•    Individual Income Tax Annual Payments are projected to decline in the 2016 Fiscal Year.
•    It’s projected that gasoline prices have bottomed out, as such it’s expected that sales tax revenue should grow in the 2016-2017 Fiscal Year.
•    Michigan Business Tax (MBT) net refunds, which have wreaked havoc on the budget in the past few years, are expected to peak in the 2016 Fiscal Year.
•    The General Fund-General Purpose (GF-GP) net growth will see a slight decline in 2016, but is projected to return to normal growth rates in both 2017 and 2018.
•    The School Aid Fund (SAF) net growth is expected to be lower than that of the GF-GP due to decreased sales tax collections because of lower gas prices.
•    For the 2015-2016 Fiscal Year, GF-GP revenue is estimated to be $9.844 billion, a decrease of $38 million from May estimated.  The SAF revenue is projected to be $12.132 billion, a decrease from May numbers of $111 million
•    The agreed upon numbers for the 2016-2017 Fiscal Year are as follows; $10.214 GF-GP revenue, an increase of $92 million from May’s projections and the SAF is now projected to be $12.486 billion, a decline of $113 million from May’s numbers.
•    The number one risk to the forecast are political and economic international issues.  Additional risks included; oil prices, Federal interest rate increases, state Income Tax Annual Payments, and uncertainty with several state taxes.

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