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Minnesota’s Economic andBudget Outlook
Prof. Laura KalambokidisUM Retirees’ Association
March 28, 2017Minnesota Management and Budget | mn.gov/mmb 1
Percent of Total Non‐Farm Employment by Sector (2016)
Minnesota has a diverse industry profile
0.5%
1.9%
3.4%
3.2%
3.9%
4.6%
4.1%
5.7%
5.3%
10.8%
11.0%
14.1%
15.3%
15.8%
0.2%
1.8%
3.5%
3.9%
4.0%
4.3%
4.4%
6.4%
6.9%
8.8%
10.4%
12.5%
14.6%
18.3%
0% 5% 10% 15% 20%
Mining and Logging
Information
Transportation, Warehousing, Utilities
Manufacturing Non‐Durables
Other Services
Construction
Wholesale Trade
Financial Activities
Manufacturing Durables
Leisure and Hospitality
Retail Trade
Professional and Business Services
Government
Education and Health Services
MinnesotaU.S.
Source: MN Department of Employment and Economic Development (DEED)
2
‐10,000
‐5,000
0
5,000
10,000
15,0002000‐20052005‐20102010‐2014
Domestic Net
Migration to MinnesotaAverage Annual Net
InternationalNet
Total Net
Source: U.S. Census Bureau
Minnesota Rank
3.5%
4.1%
Minnesota
U.S.
Total Population Growth% Change, 2010 to 2015
High School Diploma 86.9% 92.6% 2nd(Percent of Persons Age 25+, 2010‐2014)
Associate's Degree 38.3% 45.3% 4th(Percent of Persons Age 25+, 2010‐2014)
Bachelor's Degree 30.1% 34.3% 10th(Percent of Persons Age 25+, 2010‐2014)
Poverty Rate 15.5% 11.5% 7th(Percent of Persons, 2014)
Labor market assets includeeducation, in‐migration
4.7%
2.5%3.8% 4.0%
0%
2%
4%
6%
8%
10%
12%
1990 1995 2000 2005 2010 2015
U.S.
Minnesota
Source: MN Department of Employment and Economic Development (DEED)
Minnesota is 10th Lowest Among States (November 2016)
State unemployment rate remains below the U.S.
<7.5 Years
4
= U.S. Recession
Slow labor force growth projectedfor Minnesota
Source: U.S. Census Bureau (1980—2015) and Minnesota State Demographic Center Projections (2015‐2045)
41,000
54,000
24,00021,000
4,000 2,0006,000
11,00015,00015,000
0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%
‐
10,000
20,000
30,000
40,000
50,000
60,000
1980‐1990
1990‐2000
2000‐2010
2010‐2015
2015‐2020
2020‐2025
2025‐2030
2030‐2035
2035‐2040
2040‐2045
Avg. Annual Numeric Change Avg. Annual Percentage Change
Low unemployment, high demand for labor
Source: Minnesota Department of Employment and Economic Development (DEED)
0
50
100
150
200
250
2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q
'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Unemployment
Job Vacancies
Thousands
Little slack in Minnesota’s labor market
percentage Full empl.(approx.)
U.S. Minnesota
Unemployment rate 5.0 4.7 3.9
Un‐ + underemployment rate 9.0 9.2 7.7
Unemployed/job vacancies 1.0 1.4 1.2
#Employed /population 16+ 59.7 66.2
Labor force participation rate 62.7 68.9
Annual change in average wage 2.9 5.7(December 2016. Sources: BLS and MN DEED)
Among highest
Some groups still face high unemployment
8.8
5.3
3.0
Implications of a seller’s labor market
• Industries compete for workers.
•Some positions go unfilled.
•Employers get creative to find, train, and retain workers.
• Job‐seekers/switchers can be picky.•Employers adopt productivity‐enhancing technology, training, approaches.
•Pressure for compensation to increase.
Revenue and expenditure forecastsinform budget development
November 2016 Forecast
February 2017 Forecast
FY 2016‐17 Budget in place Budget in place
FY 2018‐19 Governor proposes a budget
Now we need a budget!
FY 2020‐21 Planning estimates
Planning estimates
10
Where did $1.65 billion come from?
3/27/2017 Minnesota Management and Budget | mn.gov/mmb 11
U.S. economic outlook improvedwith February forecast
Minnesota Management and Budget | mn.gov/mmb 12
1.5
2.2 2.2 2.2 2.0 2.2
1.6
2.32.7
2.32.1 2.22.2
1.7
2.42.6
0
1
2
3
4
2012 2013 2014 2015 2016F 2017F 2018F 2019F 2020F 2021F
November 2016February 2017
Real Gross Domestic ProductAnnual Percent Change
Source: U.S. Bureau of Economic Analysis (BEA), IHS Economics (IHS)
Higher growth expectedin Minnesota wage income
Minnesota Management and Budget | mn.gov/mmb 13
3.6
4.7 4.7 4.63.8
4.75.2 5.14.9
3.1
4.5
5.4
0
1
2
3
4
5
6
7
2012 2013 2014 2015 2016F 2017F 2018F 2019F
November 2016February 2017
Minnesota Nominal Wage and Salary DisbursementsAnnual Percent Change, MMB Forecast
Source: U.S. Bureau of Economic Analysis (BEA), Minnesota Management & Budget (MMB)
Stronger economic activity raisesrevenue forecast
FY 2018‐19
($ in millions)Feb 2017Forecast
ForecastChange
Individual Income Tax $24,401 $274General Sales Tax 11,466 48Corporate Franchise Tax 2,623 69Statewide Property Tax 1,742 (2)All Other Revenue 5,431 (67)Total Revenues $45,663 $321
Minnesota Management and Budget | mn.gov/mmb 14
Education spending increases in next biennium
Minnesota Management and Budget | mn.gov/mmb 15
FY 2018‐19
($ in millions)Feb 2017Forecast
ForecastChange
E‐12 Education $18,272 $95Property Tax Aids & Credits 3,452 (15)Health & Human Services 14,324 73 Debt Service 1,143 ‐All Other 7,550 3Total Spending $44,741 $156
Next biennium’s balance increases;$1.65 billion available
FY 2018‐19
($ in millions)Nov Forecast Adjusted
FebruaryForecast
ForecastChange
Beginning Balance $2,634 $2,721 $88 Revenues 45,342 45,663 321
Spending 44,585 44,741 156 Cash & BudgetReserves 1,953 1,953 ‐Stadium Reserve 38 40 3
Forecast Balance $1,400 $1,650 $250Minnesota Management and Budget | mn.gov/mmb 16
Significant risks with this forecast
• U.S. policy uncertainty• International trade• Inflation• Long, slow‐growth expansion• 28 months remain until end of FY 2018‐19
Minnesota Management and Budget | mn.gov/mmb 17
What should the FY 2018‐19 budget look like?
3/27/2017 Minnesota Management and Budget | mn.gov/mmb 18
• Increase spending!• What are the spending priorities?• Ongoing spending puts pressure on the next budget
• Cut taxes!• Whose taxes to cut?• Ongoing tax cuts put pressure on the next budget
• Save the surplus!• Just don’t commit it all—wait out some of the uncertainty• Put it in the budget reserve for a rainy day (current reserve is about $450 million short of recommended level)
19
Dr. Laura KalambokidisMinnesota State Economist
Professor of Applied Economics, University of Minnesota
Centennial Office Building 658 Cedar Street
Saint Paul, Minnesota 55155
651.201.8019 [email protected]
Contact
