Minnesota state revenues were $41 million below forecasted levels in February and March, or two percent below projections, according to Management & Budget’s (MMB’s) April 2010 Economic Update. The numbers do not seem to reflect a weakening economy, it said. The shortfalls appear to result from payment timing changes.
The Update acknowledged the federal government’s actions in heading off worse economic problems, and indicated again that the worst seemed to be behind us. The forecast said it appears that:
absent an unforeseen geo-political or international financial shock, the threat of a double dip recession has passed. The federal stimulus package and the Federal Reserve’s aggressive actions to restore credit market liquidity are generally credited by economists as playing a major role in averting a much longer and deeper recession. And, while many believe that the stimulus could have been better targeted, few forecasters doubt that the extraordinary actions taken in late 2008 and early 2009 were instrumental in returning the U.S. economy to a path of growth.
The state’s February economic forecast is still the official measuring stick for state budget proposals. The April Update does not change the state’s projected $1 billion deficit for the current biennium, but it is one more indicator that Minnesota’s economy is recovering. The April Update measures whether state revenues are following the forecast’s projections. It said the state’s two largest classes of revenue — withholding tax receipts and gross sales tax receipts — are generally on track for February and March.
Minnesota’s macroeconomic consultant, Global Insight, has not materially changed its projections. It still assigns a 65 percent probability of a slow economic recovery, no different than in February. It still assigns a 15 percent probability of a pessimistic double-dip recession and a 20 percent probability of a more optimistic “V-shaped” recovery.
Global Insight’s April projections are slightly more optimistic than in February. It predicts the U.S.’s Gross Domestic Product will grow 3.0 percent in 2011, up from 2.8 percent it projected earlier. Meanwhile, it expects inflation to remain under control through 2011, growing by 1.9 percent in 2010 and 2.0 percent in 2011.