Minnesota’s revenues are up, and the near-term national economic outlook is slightly improved compared to the February forecast, according to the new April Revenue and Economic Update from Minnesota Management and Budget.
Some of the top takeaways from the update include:
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Nationally, slightly stronger economic growth is expected in the near term, slightly weaker growth projected for 2027 compared to earlier projections. Forecasters now predict national GDP growth in 2024 to be 2.5 percent, compared to 2.4 percent predicted in the February forecast, and 2025 GDP slightly higher than February as well. They predict slightly lower growth in 2027 compared to the February forecast.
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Recent state revenues came in higher than expected in the February forecast. General fund revenues for February to March 2024 came in at $241 million, or 6.5 percent, higher than forecast in February. Corporate tax revenues came in 28.4 percent higher than expected and were the largest source of the increase.
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The official U.S. unemployment rate remains low. In March, the national unemployment rate was 3.8 percent, the result of 6.4 million people being unemployed. Forecasters predict that U.S. unemployment will average 3.8 percent in 2024 but will increase to 4.1 percent in 2025 and 4.3 percent in 2026.
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Higher U.S. immigration contributing to increased GDP growth projection. The primary factor leading the state’s macroeconomic consultants to increase their 2025 GDP growth projections is higher immigration in 2023 and anticipated in future years. Stronger immigration contributes to increased demand and labor supply in their projections.
What does this mean for budget and tax decisions this session?
This April update provides more recent information about the state’s budget and economic landscape. The February forecast remains the reference point for policymakers as they make tax and budget decisions this legislative session.
The February forecast predicted a $3.7 billion state general fund surplus for FY 2024-25 and a $2.2 billion projected positive balance at the end of the next biennium (FY 2026-27). Two key takeaways from that forecast were that 1) one-time surplus dollars generated in the past continue to play a role in funding public services and contributing to projected surpluses, and 2) a significant portion of the surpluses depend on future revenues.
Based on the February Forecast, policymakers agreed to make $478 million in net general budget changes (including increased spending or reduced revenues) for FY 2024-25 and $63 million in changes for FY 2026-27.
With the data in the April update being pretty consistent with the February Forecast, we anticipate policymakers will keep relatively close to those agreed-upon budget targets as they put together budget and tax legislation as we move into the final weeks of the legislative session..