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Archive for Saturday, November 25, 2006

Memo details rosy forecast

Growth predicted through ‘08

November 25, 2006

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— State officials have given a little more insight into why they believe the Kansas economy is heading in the right direction, citing among other things continued strength in retail sales - an area getting a big boost as holiday shopping begins in earnest.

A memo detailing the upbeat forecast was released this week, following up on a sharp upward revision Nov. 3 of the state's tax revenue outlook for the current fiscal year. Economists and state budget officials tacked $299 million onto a projection they issued in April, for a total of $5.6 billion - up 3.6 percent from the fiscal year that ended June 30.

If their predictions and interpretations are correct, the state could see more black on the financial ledger for some time.

"The Kansas economy is expected to continue the trend of positive growth through calendar 2008," the recent memo stated.

Factors contributing to that prediction include continued high energy prices, increased business activity, lower unemployment, improving agriculture and stabilizing retail sales.

The improved financial outlook increases chances that legislators can afford recent court-mandated investments in elementary and secondary education without raising taxes for at least the next two years, and possibly three.

But demands will remain for increased health care and social service programs, and for funds to address a $727 million backlog in maintenance at 567 buildings on state university campuses.

In fact, if it weren't for commitments legislators made in previous years to transfer sales tax money to finance the state's transportation program, the expected growth in retail sales could be even higher.

An additional $175 million gets transferred to transportation projects in 2008; otherwise, the expected growth in retail sales tax revenue would be $1.87 million, or 5 percent over what is expected in 2007. Economists say the growth is due to more people working, increased wages and better controls to collect taxes from retailers.

Personal income grew 6.4 percent in the latest fiscal year, but the growth is expected to slow to 5.3 percent in fiscal 2007 and 5.2 percent the following year.

Oil production is expected to remain steady for the next two years, with prices staying near $55 per barrel. Natural gas production should continue to decline with depletion of the vast reserves in western Kansas. As such, economists have downgraded expectations for taxes from energy production.

Economists also expect the job market to stabilize and the unemployment rate to increase to 4.6 percent in 2007 and 4.8 percent in 2008.

This week, the state Department of Labor reported that the Kansas unemployment rate edged up to 4.2 percent in October from 4.1 percent in September but was still an improvement from the 4.9 percent rate in October 2005.

Most of October's new jobs were concentrated in government sectors, primarily education. For the year, there has been some rebound in manufacturing and service sector jobs since the recession from 2001 to 2003. State officials said Kansas had added 5,500 service jobs and 4,100 manufacturing jobs since October 2004.

Alan Cobb, director of the Kansas chapter of Americans for Prosperity, said comparing month-to-month changes in the employment picture reveals little about the economy, but the long-term view suggests creation of private-sector jobs is lagging.

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