Presentation Transcript

1. Model Overview and September Forecast Update Presented toSeattle Economics Council

   Steve Lerch Chief Economist & Executive Director October 10, 2012 Seattle, Washington
2. MODEL OVERVIEW
3. ERFC’s US economic model
4. U.S. Economic Forecast Other Exogenous Nonwage Wage Rates Employment Income Population & Wage & Salary Housing Disbursements Personal Income ERFC’s Washington economic model This model was reviewed by Global Insight in 2007-08
5. Revenue Act model overview B&O, RST, Use and Public Utility are broken into 40 components (some small sources like semiconduct-ors and nuclear waste disposal are forecasted exogenously) Liquor tax forecast is a work in progress due to recent privatization DOR data on credits, refunds, remittances (1 month lag) QBR data on taxable activity (5 month lag) State and National Economic Models Bimonthly forecast of credits, refunds remittances Quarterly forecast of activity Bimonthly forecast of receipts (1st through 10th, 11th through EOM)
6. Any recent changes to modeling? Kalman filter applied to state employment data (as of March 2011) Include both West Texas Intermediate and Brent futures prices to forecast “refiner’s acquisition” price Revising liquor tax model Re-examining potential for greater aggregation in revenue model
7. Filtering has improved estimates Kalman filtered data has been closer in 16 out of 18 months Average absolute error is 700 jobs lower in filtered data Source: WA State ESD, ERFC; data through August 2012
8. Filtered estimates show less employment Filtered estimates are 6,000 lower in August 4,200 of the difference is from the June estimate Source: WA State ESD, ERFC; data through August 2012
9. Global Insight expects oil prices to normalize soon but the futures markets do not The mechanisms for prices to return to normal include the reversal of the Seaway oil pipeline beginning today and expanding through mid-2014 plus construction of the southern leg of the Keystone pipeline by late 2013. Global Insight’s forecast shows that they expect prices to be normal by mid-2013 but the futures market show inverted prices through 2015 at least. Source: CME Group, IntercontinentalExchange, Inc., Global Insight, ERFC; data through first quarter, 2012
10. Global Insight expects a sharp drop in oil prices this year The average refiner’s acquisition price is the oil price variable that affects the overall forecast. It is driven mainly by global prices but is also affected by the WTI price. The latest futures prices indicate that oil will decline sooner and more rapidly than expected in February. Of course, the outlook for oil remains fluid. Source: DOE, ERFC September 2012 forecast; historical data through 2012Q2
11. Revenue for liquor sales has been volatile Revenue was $4.0 million (6.4%) above the June forecast We have raised our forecast by $10.9 million this biennium Source: DOR, ERFC; data through August 2012
12. When it came to the Great Recession, forecasters were all in the same boat Two German economists put together a database of 50 economic models, including models that are used at institutions like the IMF, ECB and the Fed, and in academia These are forecasts of real GDP growth produced by the models based on the data available at the given dates compared to the actual growth through 2010
13. Data revisions create forecasting difficulties Source: BEA; data through 2012 Q2
14. Forecast errors: economic vs. revenue model?
15. FORECAST UPDATE
16. The state’s risk matrix shows most risks from outside state EUROPE Sovereign Debt U.S. Banks EUROPE Banks European Recession U.S. Trade Asia Slowdown Washington’s Economy Election cycle Iran’s effect on oil Fiscal Cliff Housing and construction, Exports Pluses Aerospace Software Minuses State & Local Government State of Washington Source: ERFC
17. U.S. GDP Forecast Slightly Lower Source: BEA, Blue Chip Economic Indicators September 2012; historical data through 2011
18. WA Personal Income Forecast Slightly Higher Source: BEA, ERFC September 2012 Forecast; historical data through 2011
19. WA Employment Forecast Slightly Higher Source: WA State ESD, ERFC September 2012 Forecast; historical data through 2011
20. The decline in employment has been severe 83K Source: WA ESD, ERFC; data through August 2012
21. Oil prices are expected to decline Source: DOE, ERFC September 2012 forecast; historical data through 2012Q2
22. Small business optimism is slowly improving Source: National Federation of Independent Business; data through August 2012
23. Consumers continue to deleverage Source: Board of Governors of the Federal Reserve System, data through 2012Q2
24. Washington construction employment will remain below trend throughout the forecast Source: ERFC September 2012 forecast; historical data through 2012Q2
25. State and local government employment will remain weak Source: ERFC September 2012 forecast; historical data through 2012Q2
26. Housing permits relative to population will still be below historic levels in 2015 Forecast Source: U.S. Census Bureau, ERFC September 2012 Forecast; historical data through 2012 Q2
27. Revenue collections have been weak compared to past recoveries Source: ERFC; data through 2012 Q2
28. Revenue Act collections are still on an upward trend Collections were up 3.4% year-over-year in the August 11 - September 10, 2012 collection period. Collections through September 10 were $15 million (0.5%) lower than forecasted. * Adjusted for large one-time transactions, amnesty payments and reporting frequency change, current definition of Revenue Act Source: DOR and ERFC; monthly data through estimated July 2012 activity
29. WA sales tax growth still moderate Preliminary seasonally adjusted sales tax receipts were up 4% year-over-year for July activity. Adjusted for large payments/refunds, amnesty payments and taxpayer reporting frequency change Source: ERFC; Monthly data through July 2012 preliminary activity
30. B&O tax growth has slowed from its prior pace Preliminary seasonally adjusted business and occupation tax receipts were up 6% year-over-year for July activity. Source: ERFC; Monthly data through July 2012 preliminary activity Adjusted for taxpayer frequency shift, amnesty payments, and recent large refunds
31. REET activity since April has been boosted by large commercial sales Source: ERFC; Monthly data through August 2012 preliminary
32. Forecast changes: General Fund State, 2011-2013 Biennium June Forecast: $30,440 million USD millions * Detail may not add to total due to rounding
33. Forecast revisions to the 2011-13 biennium USD, millions GF-S New Definition Source: ERFC September 2012 forecast
34. Forecast changes: General Fund State, 2013-2015 Biennium June Forecast: $32,626 million USD millions * Detail may not add to total due to rounding
35. Initial Forecast: General Fund State, 2015-2017 Biennium The 2015-17 biennial forecast is 8.8% higher than the 2013-15 forecast USD Millions * Detail may not add to total due to rounding
36. General Fund* forecast by fiscal year General Fund-State Revenue FY 2011 revenues were boosted by the tax amnesty program and one-time transfers of non-GF-S funds into the GF-S 4.5% 3.9% 4.8% 2.3% 4.7% 1.6% 7.9% (9.6%) (4.1 %) *General Fund & Related Funds for FY 07-09, General Fund – new definition for FY 10-13 Source: ERFC forecast, September 2012
37. Real Per Capita General Fund*-State Revenue * General Fund & Related Funds for FY 2007-2009 General Fund – new definition, for FY 2010-2015 (3.2%) 1.3 % 0.6 % (11.7%) 4.7% 1.5 % 1.5% (2.0%) (0.7%) (6.1%) Source: ERFC forecast, September 2012
38. Conclusion The forecast for the 2011-13 Biennium is $29 million higher than in June The forecast for the 2013-15 Biennium is $23 million higher than in June Revenues are expected to grow 8.0% between the 2009-11 and 2011-13 biennium and 7.2% between the 2011-13 and 2013-15 biennium As in June, an extended period of slow economic and job growth is expected for both the national and state economies The level of uncertainty in the baseline remains extremely high, and downside risks outweigh upside risks
39. Questions Economic & Revenue Forecast Council 1025 E. Union Avenue, Suite 544 Olympia WA 98504-0912 www.erfc.wa.gov 360-534-1560