The strength of Boeing manufacturing is one factor contributing to a modest improvement in Washington state's revenue forecast.

Washington’s revenue shortfall — the difference between how much money the state expects to collect and how much of it lawmakers plan to spend — got a little smaller on Thursday as budget analysts adjusted income projections upwards by around $96 million over the next two years.

Based primarily on manufacturing strength fueled by Boeing and Microsoft — the state’s two largest companies — as well as healthy levels of international goods moving through Washington’s ports, real gross domestic product grew at a seasonally adjusted annualized rate of 2.8 percent in the fourth quarter, the strongest rate since the middle of 2010.

Meanwhile, real consumer spending grew 2 percent in the fourth quarter.

“Still,” the report noted, “sustainability is questionable since real final sales increased at just a 0.8 percent rate. Most of the growth in GDP for the quarter came from inventories which contributed 1.9 percentage points to the total 2.8 percent rate.”

“The U.S. economy has performed consistent with our last forecast in November,” noted Stephen Lerch, interim executive director of the Econmic Revenue Forecast Council, “although with somewhat higher growth in employment than anticipated. Despite the relatively small change in the economic forecast, the high level of downside uncertainty in the baseline remains the same as before.”

As has been the case in previous forecasts, Lerch blamed much of the weakness on factors beyond Washington’s control.

“The biggest threat to the U.S. and Washington economies remains the sovereign debt crisis in Europe,” he said. “Although recent news suggests an agreement for a second bailout of Greece.”

The report also criticized the federal government for leaving fiscal policy “up in the air.”

The document was written, however, before Wednesday’s deal to extend payroll tax cuts — a move that could mean an additional $50 to $75 million in Washington state coffers.

Among the revenue report’s other highlights:

• Housing remains weak, although the worst is now behind us. Housing starts fell 4.1 percent in December, to a 657,000 annual rate, still the second-highest monthly reading since April 2010.
• Real GDP is now above its pre-recession peak, but it is being produced with 5.9 million fewer jobs. Growth in jobs has been very slow in this recovery, although the January employment data, showing an increase of 243,000 jobs and a reduction in the unemployment rate from 8.5 percent to 8.3 percent, were much better than expected.
• Industrial production grew 0.4 percent (SA) in December, following a 0.3 percent (SA) decline in November.
• Although consumer confidence had shown signs of firming in recent months, the latest readings have weakened.

“There’s nothing to be significantly happy about in this report,” said Sen. Joe Zarelli (R-Ridgefield. “We could have been down $40 million a year and it wouldn’t have changed our situation at all.”

While agreeing that a $40 million difference in a $30 billion budget is “essentially flat,” Rep. Ross Hunter (D-Medina) saw more in the numbers to be encouraged about.

“Having the color of the number change is a really good thing,” he said. “At least we’re staring to understand the economy again. For a long time there, no one knew what was happening. Now we’re starting to get a feel for how to handle the problem.”

During the state Economic Revenue Forecast Council’s most recent report in October, analysts projected income over the next biennium would be $2 billion less than the Legislature had planned to spend when the 2011 session adjourned last spring.

The number prompted Gov. Christine Gregoire to call a special session in December to deal with the shortfall. After two weeks of meetings, however,  the lawmakers went home with a deal to reduce that number by only around $500 million, leaving a $1.5 billion hole to fill once the regular session commenced in January.

In the first six weeks of the 2012 session, however, little work has been done — at least publicly — on balancing the budget.

“We should have been concentrating on the budget right from Day 1,” said Rep. Ed Orcutt (R-Kalama). |

But Sen. Ed Murray (D-Seattle) believes it would have been premature to start budget talks in earnest before hearing the up-to-date revenue projections.

“I think we’re exactly where we need to be in the budget process,” he said. “It’s not a great forecast, but it deserves to be noted that this is the first time in years we’ve at least had a stable forecast. We’re finally seeing movement in the right direction, but our problems are by no means solved.”

Republicans are scheduled to unveil their budget proposal on Friday. Hunter said Democrats in both houses would like to release theirs early next week, but, “If we don’t think we’re close to the number of votes needed to pass it, we won’t roll it out,” he said.

Asked how close he felt he was to having that number, Hunter replied, “No comment.”

This entry was posted on February 16, 2012 at 7:32 pm and is filed under Budget & Taxes, Economy, Elections, Politics. You can follow any responses to this entry through the RSS 2.0 feed.