It is that time of year, when the Revenue Estimating Council begins its work to determine how much the State might have in revenues and fixed expenses for the next fiscal year. The Council is comprised of the House and Senate fiscal staff members, and the Governor’s Department of Revenue staff. This group will take testimony, debate and eventually come to a consensus which will obviously be more difficult this year given the pandemic.
Last week the Council heard from HIS Markit, a firm that provides economic forecasting analysis for the US and the State of Rhode Island. Between February of 2020 and April of 2020, Rhode Island nonfarm payrolls “plummeted by 98,100” people. Unemployment jumped from 3.4% in February to 18.1% in April. The state experienced the 7th largest decline in nonfarm payrolls in the country and the 4th highest unemployment rate. Since April, there has been a steady increase in payrolls (57,700) and a decrease in unemployment (10.5%). Personal income did grow during the second quarter of 2020; however, a large part of the personal income growth came from the stimulus money and the COVID-19 unemployment program.
The tricky part comes in forecasting what may happen. HIS Markit assumptions include the passage of some type of stimulus package at the federal level. They believe the timing will depend on the outcome of the Presidential election. If President Trump is re-elected, they believe the stimulus package will pass in 2020. If Vice President Biden is elected, they believe Congress will wait until he takes office to pass a package. The Revenue Estimating Conference members asked HIS Markit to provide an updated analysis that assumes no package is forthcoming, so that the members can see what that economy might look like under that scenario.
Given the current assumptions, HIS Markit is forecasting nonfarm payrolls to decline 1.9% in FY2021, grow 3.5% in FY2022 and increase 2.2% in FY2023. That means Rhode Island’s economy would return to pre-COVID peak nonfarm employment in the second half of FY2023. Real gross state product would return to peak pre-COVID rate in late FY2022. And the State unemployment rate remains above 6% until the final quarter of FY2022. Again, this forecast is based on an assumption of the passage of some type of stimulus package – most likely a household stimulus check and an ongoing unemployment benefit program of $300 a week (instead of $600). The forecast includes an increase in personal income of 2.6% in FY 2021 due to those programs, a decrease of 0.9% in FY2022 as those programs phase out, and a 4% increase in personal income in FY2023 as the State’s economy recovers.
One interesting takeaway: across the United States, consumer spending on durable goods are above the pre-pandemic trend. HIS Markit believes many people spent their stimulus checks on large items like cars, recreational vehicles and large household items. These items are not quickly replaced, so predicting what individuals might do with another stimulus check is difficult.
The Rhode Island presentation can be viewed at http://www.rilegislature.gov/Special/rcc/REC%20Files/IHS%20RhodeIsland_Nov2020.pdf
The US presentation (which includes an analysis of Vice President Biden’s economic proposal) can be viewed at http://www.rilegislature.gov/Special/rcc/REC%20Files/IHS%20US_Nov2020_UPDATED.pdf
The remainder of the Revenue Estimating Conference Hearing Schedule is as follows:
Thursday, October 29, 2020
Testimony (if necessary)
9:00 AM Cash Assistance and Medical Caseloads –
Department of Human Services and Executive Office of Health and Human Services
Monday, November 2, 2020
9:00 A.M. Caseload Estimating Conference
2:00 P.M. Tax Collections – Department of Revenue, Division of Taxation Neena Savage, State Tax Administrator
Accruals – Accounts and Controls Peter Keenan, State Controller
Wednesday, November 4, 2020
1:00 P.M Tax Collections – Department of Revenue, Division of Taxation Neena Savage, State Tax Administrator
Friday, November 6, 2020 – Revenue Estimate 9:00 A.M. Revenue Estimating Conference