October Economic Update

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News to Make You Happy on a Friday: The Minnesota Management & Budget Department (“MMB”) released encouraging numbers on Wednesday showing a State budget surplus for the last fiscal quarter. The update shows revenues were up $145 million over the projected forecast for the last three months meaning that, to date, the State has collected $444 million more than expected in this biennium. It is also noteworthy that all three major taxes-- income, sales and corporate--outperformed the forecast, not just one sector of the economy. Real output has grown for 12 consecutive quarters, U.S. unemployment has dropped from 10 percent to 7.8 percent, auto sales are more than 50 percent above their lows and housing starts appear to be recovering. The MMB’s “October 2012 Economic Update” can be found at: http://www.mmb.state.mn.us/

News Better Suited for a Wednesday: So what are we going to spend the money on? Not so fast my fiscally frugal and frivolous friends. The Governor and Legislature can’t spend the money. State law requires that any surplus must first be used to pay back an accounting shift that was implemented in the last biennium in order to balance the budget. K-12 schools are owed approximately $2.4 billion that must be repaid before anyone gets too excited about funding their favorite pet project, cutting taxes, or building a statue of themselves on the taxpayer’s dime.

News that Makes you Feel Like a Monday: Of course, forecasts are just guesses, educated as they may be, and are based on certain assumptions that may or may not become reality. On page three of the MMB’s update (for those of you playing along at home) there are some sobering assumptions that could make the upcoming November forecast the least accurate in recent history. One major assumption is that Congress and the President will reach an agreement on a “Grand Bargain” and the U.S. economy will avoid a fiscal cliff. If they don’t, most experts believe a recession will result. It is also assumed that GDP will continue to grow at 2.1 percent. Global Insight, Inc., Minnesota’s macroeconomic consultant, notes that “the extreme uncertainty over fiscal policy is likely to remain a fact of life and a deterrent to risk taking well into 2013.”

So, although the numbers are encouraging, there is still plenty of uncertainty to give you pause before going out and purchasing that new yacht. But hey, it’s Friday, so go back and read the first paragraph and have a great weekend!

 

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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