September Economic and Revenue Update

Last Friday (September 11), the Forecast Council issued this month’s Economic and Revenue Update, reporting collection experience for the August 11 to September 10 period. This is the last key piece of information going into the next update to the state’s general fund revenue forecast.

State forecasters believe that the national economy has hit bottom, but expect the recovery to be tepid. It will be some time until it feels like the recession has ended.

We won’t know the official recession end date until some time late in 2010, or early 2011. It usually takes the National Bureau of Economic Research (NBER), the official arbiter of recessions for the United States a year or more after the recession ends to arrive at that conclusion. However, the consensus view amongst economists is that when they finally put an end point on this recession, the NBER is likely to say the recession that started in December 2007 ended in August 2009. This does not mean we are back to where we started. All it means is that the decline in activity has troughed or hit bottom. Our latest forecast expects a slow U-shaped recovery, and it will be a while before we get back to the levels we fell from. To put it differently, we are crawling along at the bottom of the U.

The best news is outside the U.S., where the economies of most of the U.S.’s trading partners are beginning to grow again. This bodes well for U.S. exports — and for Washington, which is the nation’s most trade-dependent state.

On the upside, we are witnessing an unprecedented synchronized global turnaround, resulting from a worldwide infusion of monetary and fiscal stimuli. East Asia and parts of Western Europe are experiencing a rapid recovery even before the United States, when typically they lag us. If our trading partners’ incomes are going up faster than we thought, we’ll get a bigger boost to activity from exports earlier in the cycle than we had previously penciled in.

Over the summer, Washington’s economy has closely tracked the June economic forecast.

The Washington economy has performed close to what we had expected in our June forecast. Therefore the September revision to the economic outlook has been minimal … We continue to believe that the state economy will shed jobs through the fourth quarter of 2009, with moderate job growth resuming in 2010. The Washington recovery, like the national recovery, will be slow and U-shaped.

However revenue collections have fallen $86 million short of the June revenue forecast.

Major General Fund-State revenues for the August 11 – September 10, 2009 collection period were $61.6 million (6.2%) lower than our June forecast. Cumulatively, revenues from the June 11- September 10, 2009 period are $86.0 million (2.8%) below the June forecast.

The economic and revenue forecast council will announce a new revenue forecast on Thursday (September 17). With little change to the economic forecast and the revenue shortfall relative to the June revenue forecast, we would not be surprised to see a modest reduction in the 2009–11 revenue forecast. It is possible, however, that the improvement in export prospects for the second year of the biennium will outweigh the last three months’ shortfall in collections.