Though the economy is humming along after recovering from a turbulent end to 2018, analysts this week issued a word of caution to policymakers like the Joint Ways and Means Committee, which is holding hearings on the fiscal year 2020 state budget.
Under the command of new chairs Representative Aaron Michlewitz and Senator Michael Rodrigues, committee members are launching hearings on the $42.7 billion budget Governor Charlie Baker proposed in January. The committee must consider spending plans for next fiscal year while the budget picture for this year gets a bit murky.
By the end of the day, the Department of Revenue is expected to announce tax collections numbers for February. Collections missed their target by $195 million in January, leaving state finance officials and budget monitors staring at a $403 million gap more than halfway through fiscal 2019. Baker’s fiscal 2020 budget is built on the assumption that state tax revenues will meet projections this year and then grow by 2.7 percent next fiscal year.
Economists at MassBenchmarks reported Monday that the state economy “is near full capacity and has experienced consistent growth since the end of the Great Recession in 2009.” Employment, wage and salary income and gross domestic product have grown roughly apace with or at rates greater than the national rate.
At the same time, concerns about slowing growth in China and Europe, international trade tensions and the looming Brexit are growing, as is “the potential for a national recession should these trends continue or in the event of an unexpected shock to the global financial system,” authors of the journal, which is published by the UMass Donahue Institute with help from the Federal Reserve Bank of Boston, wrote.
“Our consensus view in light of a growing number of emerging risks and economic and political uncertainties is that caution is the watchword,” the economists wrote.
Eric Rosengren, president and CEO of the Federal Reserve Bank of Boston, said in a speech Tuesday to corporate directors that he sees “healthy U.S. economic growth somewhat above 2 percent” over the next year but warned that policymakers should not “place complete faith in what they believe is the most likely outcome.”
“Patiently watching to see how the economy develops is the appropriate policy for now, and represents prudent management of risks to the forecast,” he said.