WASHINGTON STATEECONOMIC AND REVENUE FORECAST COUNCIL Model Overview and September Forecast Update...
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Transcript of WASHINGTON STATEECONOMIC AND REVENUE FORECAST COUNCIL Model Overview and September Forecast Update...
WASHINGTON STATEECONOMIC AND REVENUE FORECAST COUNCIL
Model Overview and September Forecast Update
Presented toSeattle Economics Council
Steve LerchChief Economist & Executive Director
October 10, 2012Seattle, Washington
October 10, 2012 Washington State Economic and Revenue Forecast Council
MODEL OVERVIEW
October 10, 2012 Washington State Economic and Revenue Forecast Council
ERFC’s US economic model
ERFC U.S. Forecast
Blue chip consensus
GDP
Global Insight model
Brent & WTI
futures prices
October 10, 2012 Washington State Economic and Revenue Forecast Council
ERFC’s Washington economic model
U.S. Economic Forecast
Other Exogenous
EmploymentWage Rates Nonwage Income
Wage & Salary Disbursements
Population & Housing
Personal Income
This model was reviewed by Global Insight in 2007-08
October 10, 2012 Washington State Economic and Revenue Forecast Council
Revenue Act model overview
QBR data on taxable activity (5 month lag)
DOR data on credits, refunds, remittances
(1 month lag)State and National Economic Models
Quarterly forecast of activity
Bimonthly forecast of credits, refunds
remittances
Bimonthly forecast of receipts
(1st through 10th, 11th through EOM)
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
October 10, 2012 Washington State Economic and Revenue Forecast Council
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
October 10, 2012 Washington State Economic and Revenue Forecast Council
Oct Nov Dec Jan Feb Mar-4
-2
0
2
4
6
8
10
Monthly WA Private Employment Change
Benchmark ERFC Unfiltered Kalman Filtered
Th
ou
sa
nd
s
Source: WA State ESD, ERFC; data through August 2012
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
October 10, 2012 Washington State Economic and Revenue Forecast Council
Filtered estimates show less employment
Nov Dec Jan Feb Mar Apr May Jun Jul Aug2,830
2,840
2,850
2,860
2,870
2,880
2,890
Washington Total Nonfarm Employment, SA
Filtered Unfiltered
T h o u s a n d s
Source: WA State ESD, ERFC; data through August 2012
Filtered estimates are 6,000 lower in August
4,200 of the difference is from the June estimate
October 10, 2012 Washington State Economic and Revenue Forecast Council
Global Insight expects oil prices to normalize soon but the futures markets do not
2007
2007Q2
2007Q3
2007Q4
2008
2008Q2
2008Q3
2008Q4
2009
2009Q2
2009Q3
2009Q4
2010
2010Q2
2010Q3
2010Q4
2011
2011Q2
2011Q3
2011Q4
2012
2012Q2
2012Q3
2012Q4
2013
2013Q2
2013Q3
2013Q4
2014
2014Q2
2014Q3
2014Q4
2015
2015Q2
2015Q3
2015Q4
-10
-5
0
5
10
15
20
25
Oil Price Spreads
GI (Avg. Imported less WTI) Futures (Brent less WTI)
Dollars
Per
Barr
el
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
October 10, 2012 Washington State Economic and Revenue Forecast Council
Global Insight expects a sharp drop in oil prices this year
2007
2007
2007
2007
2008
2008
2008
2008
2009
2009
2009
2009
2010
2010
2010
2010
2011
2011
2011
2011
2012
2012
2012
2012
2013
2013
2013
2013
2014
2014
2014
2014
2015
2015
2015
2015
25
50
75
100
125
Average Refiner’s Acquisition Priceof Crude Oil
Sept. Global Insight September June
Dollars
per
barr
el
Forecast
Source: DOE, ERFC September 2012 forecast; historical data through 2012Q2
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.
October 10, 2012 Washington State Economic and Revenue Forecast Council
Revenue for liquor sales has been volatile
2006 2007 2008 2009 2010 2011 201210000
12000
14000
16000
18000
20000
22000
24000
Liquor Sales and Liter Taxes, SA
Actual June Forecast
M il li o n s o f d o ll a r s
Source: DOR, ERFC; data through August 2012
We have raised our forecast by $10.9 million this biennium
Revenue was $4.0 million (6.4%) above the June forecast
October 10, 2012 Washington State Economic and Revenue Forecast Council
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
October 10, 2012 Washington State Economic and Revenue Forecast Council
Data revisions create forecasting difficulties
2007
2007
2007
2007
2008
2008
2008
2008
2009
2009
2009
2009
2010
2010
2010
2010
2011
2011
2011
2011
2012
2012
245
250
255
260
265
270
275
Washington Personal Income
recession 2 Years Ago Year Ago
Billions
of
USD
Source: BEA; data through 2012 Q2
October 10, 2012 Washington State Economic and Revenue Forecast Council
Forecast errors: economic vs. revenue model?
Forecast Analysis: Major Tax Sources, 2009-11 Biennium, $ Millions
(Retail sales, business & occupation, use, public utility, real estate excise)
Forecast Error
Forecast Date
Actual Forecast*
Forecast w/ June 2011 Economic
Data*
Actual Collections
less Amnesty
Total Economic Other
Nov-08 25,422 21,608 20,801 4,621 3,814 807
Nov-09 22,999 21,311 20,801 2,198 1,688 510
Nov-10 21,134 21,314 20,801 333 -180 513
*Corrected for subsequent non-economic changes excluding amnesty program
October 10, 2012 Washington State Economic and Revenue Forecast Council
FORECAST UPDATE
October 10, 2012 Washington State Economic and Revenue Forecast Council
The state’s risk matrix shows most risks from outside state
Wash
ing
ton
’s
Eco
nom
y
EUROPESovereign Debt
EUROPEBanks
U.S.Banks
• Fiscal Cliff • Election cycle• Iran’s effect on oil
Housing and construction, Exports
State of Washington
PlusesAerospaceSoftware
MinusesState & Local Government
Source: ERFC
EuropeanRecession
AsiaSlowdown
U.S.Trade
October 10, 2012 Washington State Economic and Revenue Forecast Council
U.S. GDP Forecast Slightly Lower
2011 2012 2013 2014 201512,500
13,000
13,500
14,000
14,500
15,000
Blue Chip Consensus Real GDP forecast
June September
Billions
of
2005 D
ollars
Source: BEA, Blue Chip Economic Indicators September 2012; historical data through 2011
October 10, 2012 Washington State Economic and Revenue Forecast Council
WA Personal Income Forecast Slightly Higher
2011 2012 2013 2014 2015240
250
260
270
280
290
300
310
Washington Real Personal Income
June September
Billions
of
2005 D
ollars
Source: BEA, ERFC September 2012 Forecast; historical data through 2011
October 10, 2012 Washington State Economic and Revenue Forecast Council
WA Employment Forecast Slightly Higher
2011 2012 2013 2014 20152,700
2,750
2,800
2,850
2,900
2,950
3,000
3,050
3,100
Washington Nonfarm Payroll Employment
June September
Thousa
nds
Source: WA State ESD, ERFC September 2012 Forecast; historical data through 2011
October 10, 2012 Washington State Economic and Revenue Forecast Council
The decline in employment has been severe
0123456789101112131415161718192021222324252627282930313233343536373839404142434445464748495051525354555657
-200
-150
-100
-50
0
50
100
150
200
250
Washington Employment after Business Cycle Peak
1990 2001 2007-09Months
Thousands
Source: WA ESD, ERFC; data through August 2012
83K
October 10, 2012 Washington State Economic and Revenue Forecast Council
Oil prices are expected to decline
2005
2005
2005
2005
2006
2006
2006
2006
2007
2007
2007
2007
2008
2008
2008
2008
2009
2009
2009
2009
2010
2010
2010
2010
2011
2011
2011
2011
2012
2012
2012
2012
2013
2013
2013
2013
2014
2014
2014
2014
2015
2015
2015
2015
25
50
75
100
125
Average Price of Crude Oil
September June
Dollars
per
barr
el
Forecast
Source: DOE, ERFC September 2012 forecast; historical data through 2012Q2
October 10, 2012 Washington State Economic and Revenue Forecast Council
Small business optimism is slowly improving
2006 2007 2008 2009 2010 2011 201275
80
85
90
95
100
105
Small Business Optimism IndexIn
dex, 1986=
100
Source: National Federation of Independent Business; data through August 2012
October 10, 2012 Washington State Economic and Revenue Forecast Council
Consumers continue to deleverage
1980
1981
1983
1984
1986
1987
1989
1990
1992
1993
1995
1996
1998
1999
2001
2002
2004
2005
2007
2008
2010
2011
14
15
16
17
18
19
20
Total U.S. Household Debt Service and Financial Obligations as % of Disposable Personal Income
Perc
ent
Source: Board of Governors of the Federal Reserve System, data through 2012Q2
October 10, 2012 Washington State Economic and Revenue Forecast Council
Washington construction employment will remain below trend throughout the forecast
19901990199019901991199119911991199219921992199219931993199319931994199419941994199519951995199519961996199619961997199719971997199819981998199819991999199919992000200020002000200120012001200120022002200220022003200320032003200420042004200420052005200520052006200620062006200720072007200720082008200820082009200920092009201020102010201020112011201120112012201220122012201320132013201320142014201420142015201520152015100
125
150
175
200
225
Washington Construction Employment
Trend, 1990-2012:2 Employment
Thousa
nds
Forecast
Source: ERFC September 2012 forecast; historical data through 2012Q2
October 10, 2012 Washington State Economic and Revenue Forecast Council
State and local government employment will remain weak
19901990199019901991199119911991199219921992199219931993199319931994199419941994199519951995199519961996199619961997199719971997199819981998199819991999199919992000200020002000200120012001200120022002200220022003200320032003200420042004200420052005200520052006200620062006200720072007200720082008200820082009200920092009201020102010201020112011201120112012201220122012201320132013201320142014201420142015201520152015300
325
350
375
400
425
450
475
500
Washington State and Local Government Em-ployment
Trend, 1990-2012:2 Employment
Thousa
nds
Forecast
Source: ERFC September 2012 forecast; historical data through 2012Q2
October 10, 2012 Washington State Economic and Revenue Forecast Council
Housing permits relative to population will still be below historic levels in 2015
1969 1972 1976 1980 1984 1987 1991 1995 1999 2002 2006 2010 20140
2
4
6
8
10
12
14
16
18
20
Washington Housing Permits per 1,000 People
Source: U.S. Census Bureau, ERFC September 2012 Forecast; historical data through 2012 Q2
Forecast
October 10, 2012 Washington State Economic and Revenue Forecast Council
Revenue collections have been weak compared to past recoveries
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19-15
-10
-5
0
5
10
15
20
25
30
35
Revenue Act Collections after Business Cycle Peak
1990 2001 2007-09Quarters
Cum
ula
tive G
row
th (
perc
ent)
Source: ERFC; data through 2012 Q2
October 10, 2012 Washington State Economic and Revenue Forecast Council
Revenue Act collections are still on an upward trend
Source: DOR and ERFC; monthly data through estimated July 2012 activity
* Adjusted for large one-time transactions, amnesty payments and reporting frequency change, current definition of Revenue Act
2002200220022002200220022002200220022002200220022003200320032003200320032003200320032003200320032004200420042004200420042004200420042004200420042005200520052005200520052005200520052005200520052006200620062006200620062006200620062006200620062007200720072007200720072007200720072007200720072008200820082008200820082008200820082008200820082009200920092009200920092009200920092009200920092010201020102010201020102010201020102010201020102011201120112011201120112011201120112011201120112012201220122012600
700
800
900
1000
$millions SA
Revenue Act Revenue 3-Month Moving Average
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.
October 10, 2012 Washington State Economic and Revenue Forecast Council
WA sales tax growth still moderate
2004 2005 2006 2007 2008 2009 2010 2011 2012450
500
550
600
650
700
Washington Retail Sales Tax Receipts
Retail Sales Tax 3-Month Moving Average
$Millions, SA
Source: ERFC; Monthly data through July 2012 preliminary activity
Adjusted for large payments/refunds, amnesty payments and taxpayer reporting frequency change
Preliminary seasonally adjusted sales tax receipts were up 4% year-over-year for July activity.
October 10, 2012 Washington State Economic and Revenue Forecast Council
B&O tax growth has slowed from its prior pace
2004 2005 2006 2007 2008 2009 2010 2011 2012160
180
200
220
240
260
280
300
Washington B&O Tax Receipts
B&O Tax 3-Month Moving Average
$Millions, SA
Adjusted for taxpayer frequency shift, amnesty payments, and recent large refunds
Source: ERFC; Monthly data through July 2012 preliminary activity
Preliminary seasonally adjusted business and occupation tax receipts were up 6% year-over-year for July activity.
October 10, 2012 Washington State Economic and Revenue Forecast Council
REET activity since April has been boosted by large commercial sales
1996 1998 2000 2002 2004 2006 2008 2010 20120
1
2
3
4
5
6
7
8
9
10
Seasonally Adjusted Taxable Real Estate Excise Activity$Billions
Source: ERFC; Monthly data through August 2012 preliminary
October 10, 2012 Washington State Economic and Revenue Forecast Council
Forecast changes: General Fund State, 2011-2013 Biennium
September Forecast
Collection Experience
Forecast Change Forecast
Total Change*
Dept. of Revenue
$20 $24 $28,824 $44
All other agencies
$1 ($16) $1,646 ($15)
Total GF-S $21 $8 $30,469 $29
* Detail may not add to total due to rounding
June Forecast:
$30,440 million
USD millions
October 10, 2012 Washington State Economic and Revenue Forecast Council
Forecast revisions to the 2011-13 biennium
Feb-10
Jun-10
Sep-10
Nov-10
Mar-11
Jun-11
Sep-11
Nov-11
Feb-12
Jun-12
Sep-12
Forecast
27,000
29,000
31,000
33,000
35,000
32,224
30,469
1,858
669
809
698 183
1,413 122
96 156 29
USD, millions
Source: ERFC September 2012 forecast
GF-S
New Definition
October 10, 2012 Washington State Economic and Revenue Forecast Council
Forecast changes: General Fund State, 2013-2015 Biennium
September Forecast
Non-economic Change
Forecast Change Forecast
Total Change*
Dept. of Revenue
$0 $39 $31,114 $39
All other agencies
$0 ($15) $1,535 ($15)
Total GF-S $0 $23 $32,649 $23
* Detail may not add to total due to rounding
June Forecast:
$32,626 million
USD millions
October 10, 2012 Washington State Economic and Revenue Forecast Council
Initial Forecast: General Fund State, 2015-2017 Biennium
USD Millions
* Detail may not add to total due to rounding
Forecast ($millions)
Dept. of Revenue $34,102
All other agencies $1,416
Total GF-S $35,518
The 2015-17 biennial forecast is 8.8% higher than the 2013-15 forecast
October 10, 2012 Washington State Economic and Revenue Forecast Council
General Fund* forecast by fiscal year
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY1710000
11000
12000
13000
14000
15000
16000
17000
18000
19000
20000$billions
Forecast
8.0%1.2%
(9.6%)(4.1 %)
7.9%
*General Fund & Related Funds for FY 07-09, General Fund – new definition for FY 10-13Source: ERFC forecast, September 2012
1.6%4.7%
General Fund-State RevenueFY 2011 revenues were boosted by the tax amnesty program and one-time transfers of non-GF-S funds into the GF-S
2.3%
4.8%
3.9%
4.5%
October 10, 2012 Washington State Economic and Revenue Forecast Council
Real Per Capita General Fund*-State Revenue
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17$1,000
$1,500
$2,000
$2,500
Per Capita GF-S*, $2005
Forecast3.8%
(11.7%)
(6.1%)
4.7%
Source: ERFC forecast, September 2012
(2.0%)1.5%
(3.2%)
* General Fund & Related Funds for FY 2007-2009
General Fund – new definition, for FY 2010-2015
1.5 %(0.7%)
0.6 % 1.3 %
October 10, 2012 Washington State Economic and Revenue Forecast Council
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
October 10, 2012 Washington State Economic and Revenue Forecast Council
Questions
Economic & Revenue Forecast Council1025 E. Union Avenue, Suite 544Olympia WA 98504-0912
www.erfc.wa.gov360-534-1560