While crafting the upcoming fiscal year budget, the House and Senate will have a slightly increased amount of money to appropriate, according to updated economic estimates. This news comes as a result of the biannual Consensus Revenue Estimating Conference that was held today in Lansing. Today’s conference is a follow-up to January’s conference, where updated economic data is used to review, and adjust when necessary, the anticipated revenue to the state.

Revenue to the General Fund-General Purpose (GF-GP) is projected at $10.85 billion, up $151.50 million from January estimates. While the School Aid Fund (SAF) is estimated to be $13.48 billion, down $151.50 million from January estimates. That gives a net increase of $83.30 million to the combined GF-GP and SAF revenue estimates. In FY 2020, the GF-GP revenue is projected at $10.78 billion, an increase of $59.10 million from prior estimates, while the SAF revenue is estimated to be $13.84 billion, a decrease of $86.90 million from early projections.

Highlights from the conference include:

National:

• • Vehicle sales had a weak start in 2019 due to fewer new models, less incentives from dealers, and high out of finance interest rates.
  • Showing a hint of weakness, wage growth is no longer accelerating. This shows that despite the unemployment rate, the job market isn’t as tight as it appears.
  • There is a concerning fall in projected Core PCE Inflation and the CPI.
  • Lower interest rates have helped increase single family home sales.
  • Nonfarm payroll employment gains and the employment rate should remain stable.
  • Real GDP growth is projected to decline from 2.9% in 2018, to 2.6% in 2019, 1.8% in 2020, and 1.6% in 2021.
  • Core consumer price inflation is estimated to decline from 2.14% in 2018 to 1.84% in 2019 but moves up in 2020 to 1.97% and 2.23% in 2021.

State:

• • Building permits have never returned to pre-recession levels and are currently trending down.
  • Initial unemployment claims are well below pre-recession numbers, setting an all-time record low level.
  • There are still pockets in Michigan with higher unemployment rates than economists would like to see.
  • Light vehicle sales should continue to trend down as more people are purchasing trucks, SUVS, etc.
  • Projected job gains through 2020, which would replenish 80% of the jobs lost in the early 2000s.
  • Weak local inflation at 1% this year, and 1.8% in 2020 and 2021.
  • April income tax payments increased sharply.
  • No pay-ins are projected to the Budget Stabilization Fund during FY2019 and FY2020, but a pay-in during FY2021 of between $0-$70 million. No pay-outs are projected through FY 2021.

Risks:

• • Ongoing trade war with China.
  • China sales of Detroit 3 vehicles have slowed faster than the rest of the market.
  • Potential automobile tariffs.
  • The current situation with Iran could impact oil prices.
  • Uncertainty with a NAFTA replacement deal.
  • UAW contract negotiations as the current contracts expire in late summer.
  • Michigan – Weak individual income tax withholding and sales tax.
  • Volatility in the Michigan Corporate Income Tax.

The House and Senate will use the agreed upon revenue estimates from today’s conference to finalize the budget for the upcoming 2019-2020 Fiscal Year.

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